Getting product from A to B

From omnichannel to fulfillment to global trade, nine challenges facing retail supply chain executives

The pressure is rising for retailers to fine-tune their supply chains as they source and deliver more products than ever at an increasingly rapid pace across the globe. Retail supply chain executives are challenged on many fronts, from operations and sourcing to fulfillment and last-mile delivery. The growing uncertainty about global trade and tariffs also complicates the picture, and new technologies offer promise but can be difficult to pilot and implement.

The retailers that overcome these challenges will be those that are flexible and responsive with the right technology, people and strategies.

Tariffs and international uncertainty

The prospect of tightening global trade policies has forced many retailers to take a second look at their sourcing and supply chains. U.S. tariffs of 10 percent on $200 billion worth of Chinese goods took effect in September, adding to 25 percent tariffs on $50 billion in goods that took effect last summer, and uncertainty remains surrounding the direction of U.S trade policy. As of press time in April, negotiations between the United States and China were ongoing but President Trump said, “we’re talking about leaving them for a substantial period of time” rather than removing the tariffs.

Retailers spent much of 2018 contemplating the issue and trying to mitigate the risks. Some frontloaded inventories while others looked for sources outside of China. Walmart CEO Doug McMillion said in December that while the company was doing its best to avoid price increases, he was concerned about the rest of 2019.

“It is all throwing uncertainty into the supply chain and sourcing decisions that companies are making,” says NRF Vice President for Supply Chain and Customs Policy Jonathan Gold. “What is going on with trade has become a major challenge.”

In addition to China, the pending replacement of the North American Free Trade Agreement with the new United States-Mexico-Canada Agreement is adding to the pressure. Retailers are engaging in some “interesting planning” measures to try to mitigate some of the growing risks to the global trade system in terms of how they perceive their supply chains, says Thomas O’Connor, senior director and analyst on Gartner’s supply chain industries and programs team.

Other global factors are also at play. The International Maritime Organization’s low-sulphur fuel mandate goes into effect next year to reduce harmful emissions from ships and will cut the global sulphur cap from 3.5 percent to 0.5 percent. While the measure is certain to add to fuel costs, it remains to be seen how much that increase will be and at what rate retailers and ocean carriers will split the burden, Gold says.

Increasing complexity

Whereas the traditional retail model was to deliver mass volumes of stock to single locations, today’s retail supply chain has become “extremely complicated and fragmented,” says Alex Sbardella, senior vice president of global innovation at GDR Creative Intelligence. Direct-to-consumer models, omnichannel fulfillment, new supply lanes and continuing pressure to do it all faster and at a lower cost have forced retailers to work harder to get merchandise where it needs to be.

The complexity is driving many retailers to seek greater flexibility in their supply chains, not only in how they source but how they move and store products. A shortage of warehouse space on the West Coast — created by the frontloading of imports ahead of expected tariff increases in the past year — has given rise to flexible warehouse solutions, while new marketplace-style transportation platforms modeled after Uber and Airbnb are now offering flexible transportation options. Startup Flexe offers on-demand warehousing at more than 1,000 locations around the country; companies like Transfix enable shippers and carriers to quickly pair on price, capacity and destination.

The silver lining is that those retailers that can manage such complexity can create competitive advantages in their supply chains, says Lily Shen, chief operating officer at Transfix. The most successful are those that not only seek new technologies but leverage people to solve problems.

“There needs to be highly analytical system thinkers, natural connectors for the dots — problem solvers,” Shen says. “Things are evolving so quickly you have to have the people to be analytical and thoughtful into how they build those solutions.”

Greater visibility

While technology has enabled retailers and shippers to gain greater visibility into their supply chains, consumers are also demanding “fine grain” insights into all the details, Sbardella says. They now want to know not only where their shipments are and when they will arrive, but also detailed information about materials and where and when products were sourced. Many are concerned about sustainability and longevity and are taking a greater interest in where their products come from.

“Who made the product and where, what it is made of, how many are in my local store, where is my delivery on a map right now,” Sbardella says. “This also means we’ve created a system where our mistakes and weaknesses are visible and exposed like never before.”

JDA Software Group, Microsoft Corp. and Incisiv surveyed global C-level executives and found nearly 80 percent don’t have a real-time view of inventory across their supply chain channels. Half said they don’t believe they have the right platforms or technology in place to support expanded fulfillment options. Many did not have an analytics strategy in place and said their data was of “poor quality” or that they could not trust the accuracy of it.

Retailers are also increasingly connected to and reliant on their partner organizations, whether it be a third-party logistics provider, a point-to-point last-mile delivery provider or a product supplier. And most players expect the data to be “near real-time,” O’Connor says. In the Gartner Supply Chain Technology User Wants and Needs survey conducted last year, end-to-end supply chain visibility is a top goal retailers are looking toward to enable their business objectives and goals for 2025.

Keeping pace with technology

New technologies offer many benefits, but executives are being overwhelmed by the abundance of products and solutions on the market. While many might want to invest in new products or applications they see at trade shows, it might not be aligned to what the broader organization is trying to deliver. In addition, many of the most innovative solutions are only in testing and have yet to be scaled or properly built out yet.

Many retailers are also challenged on what they should do first or what they should prioritize, says Chelsie Lee, co-founder and CEO of Shipsi. It’s not uncommon to dabble in five or 10 different options ranging from buy online, pick up in store to discount codes and layaway programs. Robotics, automation, RFID tagging, new cloud-based systems, blockchain, drones and autonomous vehicles are all on the radar.

“There are so many different variables in the supply chain that rather than picking one foundational partner that will change your business because there are so many different options, they are dabbling a little bit in one or the other instead of ironing down the focus,” Lee says.

Finding the right solutions often comes down to having the right data to make decisions, Shen says. Retailers can best find the right technologies by establishing goals and having accurate and real-time data to manage, report, benchmark and find exactly what will most benefit their supply chain.

The need for speed

Amazon’s normalization of two-day delivery is raising the expectations for consumers across the retail industry. A recent NRF study found nearly 40 percent of consumers expect two-day shipping to be free, and 29 percent have backed out of a purchase because it wasn’t. While retailers try to catch up, the e-tailer is already moving faster: Amazon said Prime members in more than 10,000 communities can now get free same-day or one-day delivery on more than 3 million items.

“That pace, that continuing push for fast fulfillment is something that we also see in other markets such as China,” O’Connor says. “This idea about pushing for fast fulfillment is obviously ratcheting up pressure across the industry and is becoming normalized.”

Amazon’s normalization of two-day delivery is raising the expectations for consumers across the retail industry. A recent NRF study found nearly 40 percent of consumers expect two-day shipping to be free, and 29 percent have backed out of a purchase because it wasn’t.

This consumer-driven expectation for faster shipping will only increase in the coming years, says Curt Bimschleger, managing director at Deloitte. Over the past 15 years, those expectations have risen from seven-day delivery to three- and four-day delivery to two-day and now even faster. Deloitte’s recent report on urban fulfillment noted that same-day delivery will become the norm in the next few years and that retailers will need to adopt a new mindset around their supply chains.

The most effective solution will be to create “macrohubs” with spokes that bring products closer to consumers with local delivery vehicles. “There’s a continual trend of putting inventory closer to the customer, and [same-day] delivery could be an expectation by 2023,” Bimschleger says. “Whether you can get it done from minihubs, ship from store or other methods, it’s about doing it cost effectively and to meet expectations.”

The growing volume of returns

Increasing consumer demands and growing competition among return policies is spurring consumers to return more merchandise than ever. Analysis of NRF research by Appriss Retail indicates consumers return more than $350 billion worth of merchandise annually, roughly 10 percent of all retail sales. The sheer volume is challenging many retailers to manage increasingly complex reverse logistics supply chains, says Tony Sciarrotta, executive director of the Reverse Logistics Association.

“They’re having a hard time trying to find out what to do with all of these things — to make decisions about the product, where it’s going to go, whether it can be recycled or refurnished,” he says.

The growing volume of returns is also creating friction between retailers and manufacturers, Sciarrotta says. While electronic manufacturers would take back most items in the past, many now offer retailers allowances to liquidate the merchandise. Liquidation platforms such as B-Stock Solutions enable retailers to attain the highest price possible for secondary market merchandise. “Retailers are trying to do the best they can. Some will put their returns out for bid every year. Others will try to keep the good stuff and get rid of it themselves,” Sciarrotta says.

Despite the challenges, retailers can use return policies as a competitive advantage. A report by Narvar found 96 percent of shoppers say they would shop with a retailer again based on an “easy” return experience, and more than half say they exchanged or replaced the last item they returned. Meanwhile, more than two-thirds say they would be deterred by having to pay for return shipping or fees while nearly 20 percent said they would not make a purchase without the ability to return to store.

Amazon has set a new benchmark for ecommerce with its 30-day, no-fee return policy on most items; offers a 365-day return policy and Nordstrom has been noted to have one of the most lenient, with a lifetime return policy handled on a “case-by-case” basis.

Trucker shortage

A growing shortage of truck drivers is becoming a bigger issue for retailers. According to the American Trucking Associations, the trucking industry is currently short 60,000 drivers, a number that is expected to rise to 100,000 in just a few years. That’s expected to become a bigger problem for retailers as more than 70 percent of all freight tonnage in the United States moves by truck.

In 2018, several companies including toymaker Hasbro and chipmaker Nvidia noted that the driver shortage was impacting their business. Many indicate that ecommerce has put a greater demand on the industry — Walmart is even struggling with a driver shortage and announced in January it was implementing a faster hiring process and new orientation initiatives to fill hundreds of critical driver jobs. As of February, it increased per-mile and per-arrival pay to raise driver pay to an average of $87,500 per year.

It’s an issue that is likely to put upward pressure on transportation costs, Gold says. While transportation industry insiders seek immediate solutions, they’re also looking to the potential of things like drones and autonomous vehicles to reduce the pressure in the future. “It’s a big issue across the board and it appears to be getting worse,” Gold says. “Drivers are getting older and retiring, and you’re not getting as many younger ones in the career path.”

Last-mile delivery

The growth, complexity and increased speed of ecommerce deliveries is also straining last-mile delivery. Retailers are not only trying to get deliveries to consumers but do so in a manner that improves the experience. A recent survey of shoppers by Convey found 98 percent believe shipping impacts brand loyalty and that 84 percent say they are unlikely to shop again after only one negative experience. Consumers who cite previous delivery experiences as a key factor in retailer selection are 60 percent more likely to return to a brand that has resolved an issue.

“FedEx, UPS and DHL can’t do it all themselves and [retailers]are looking for new avenues to meet that demand. It’s a growing challenge,” Gold says.

study by Auburn University found retailers are largely focusing on last-mile delivery in urban markets to enhance their services: 80 percent of those surveyed said urban fulfillment is an area of growth and almost 40 percent said final mile costs are a major challenge. More than 90 percent said they would invest either the same or more money in supply chain management process upgrades and that spending would be higher for omnichannel capabilities.

Craig Guillot is based in New Orleans and writes about retail, real estate, business and personal finance.