Business Trends

E-commerce Evolution — Element 3: Changing Supply Chains

File Type: Report, Free Content
Release Date: July 2016
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(Originally posted March 2014, updated July 2016)

E-commerce is forcing both retailers and transportation/logistics companies to make significant changes to their respective supply chains — the way goods are moved from manufacturers to retailers and consumers. According to Retail Systems Research (RSR), a retailer seeking to increase its e-commerce presence faces three key challenges:

1) The existing supply chain is not structured to accommodate high volumes of direct-to-consumer shipments;

2) Existing warehouses cannot accommodate high volumes of direct-to-consumer shipments; and

3) New processes are needed to help retailers accurately and efficiently account for online purchases returned to stores.

At the core of these issues is inventory management. Retailers that can figure out how to make their inventory chains transparent will be able to create efficiencies in these new supply chains, which increasingly are being dominated by direct-to-consumer shipments. A survey conducted by RSR reports that retailers say the only place they have relative confidence in their inventory levels is in their distribution centers (DCs). Understanding enterprise-wide inventory levels is much more challenging, as is identifying which and how many goods are located in individual stores, on store shelves, available online or through direct channels, en route to or from stores, or en route to or from DCs. As omnichannel retailing becomes the new norm, connecting the inventory dots among all of the various channels will be critical to a retailer’s success.

If consumers, retailers and manufacturers are the actors and retail goods are the props in this play, then transportation and logistics firms — which drive to, dock at, load and unload goods at ports, industrial sites, retail facilities and now homes and offices — are the stage crew, the invisible hands that move items behind the scenes. Surprisingly enough, this silent partner is the second-largest employment sector in the U.S., employing more than 6 million people and expected to add 270,000 jobs annually through 2018. Finding enough interested and qualified workers is therefore a significant issue facing this sector in the future.

For close to a century, the smallest piece moved by a logistics company was a pallet or a large box, which generally was delivered to a warehouse or distribution center located close to an interstate highway. Today, many of these companies — and the third-party delivery services they hire — are expected to be able to deliver a single item to a residential address, often in a suburban or urban setting that is less than inviting to even the nimblest of delivery trucks. This new delivery model poses both cost and environmental challenges for the industry. Experts suggest that these challenges can be overcome by focusing on collaboration among competitors, so vehicles and containers are at least partially full on return trips; increased cross docking and dynamic vehicle routing in urban areas; and use of robotics, automation and sensors to move goods and track inventory.

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