First Look - Forces Changing the Supply Chain and Retail Sector

Fall 2012

The global consumer shift toward electronic-commerce (e-commerce), mobile device supported commerce (m-commerce), and social media supported commerce (s-commerce) is changing how the retail and warehouse industries operate. This trend and its affect on the physical location of warehouses, distribution centers and retail stores, is detailed in the report,“The New Borderless Marketplace: Repositioning Retail and Warehouse Properties for Tomorrow,” co-sponsored by the NAIOP Research Foundation and International Council of Shopping Centers (ICSC).

The Evolution of Bricks and Mortar

The traditional, physical storefront has changed in recent years due to more efficient inventory management and control, improved logistical coordination and advancements in payment systems. Retail stores are also becoming places where online customers can opt for a store pick-up, rather than home delivery. However, these options must also be integrated with the retailer’s supply chain and distribution strategy, enabling the retailer to fulfill the order and deliver as promised to their customers.

To make purchasing easy, retailers will need to ensure that the process of searching, purchasing, receiving and even returning a product, is simple. This will most likely include the ability to purchase online and return in-store. Since there is high demand for readily available products, retailers will need to reevaluate the locations of their distribution centers. New cost-effective strategies will also need to be implemented. These may include reconfiguration of retail properties and/or distribution centers or outsourcing logistics to third-party vendors.

graphic of the typical supply chain between customers and distribution centers

Typical Supply Chain Structures between Customers and Distribution Centers (DC)

According to the NAIOP/ICSC report, in 2011, about one-third of Americans owned an Internet-enabled smartphone, and 25 percent of users indicated they would like to use their mobile phone to pay at the point of sale. With more Smartphone adoption, the use of and comfort with mobile commerce will likely cause e-transactions to increase over time. The report explains how these expected changes in commerce will have a profound impact on global supply chains, as well as the way in which products are delivered between manufacturing centers and individual consumers.

The Multi-Channel Supply Chain

The traditional supply chain, used by the retail industry for decades, consisted of a single or multiple distribution center network that supported regional-store replenishment. In order to support emerging e-commerce, m-commerce, and s-commerce demands, retailers today must adopt new approaches that support moving goods from distribution centers directly to consumer sites. While some retailers will choose to completely outsource their e/m/s-commerce fulfillment to third-party specialists, like, others will reconfigure parts of their existing distribution networks to support a multi-channel or blended fulfillment strategy.

The decision to outsource the entire e/m/s-commerce distribution platform or to retain part or all of both fulfillment channels, is largely a function of the proximity between the goods and ground or air hubs for UPS, Fed-Ex or the postal service. Closeness to a transportation hub allows for longer daily order fulfillment cycles and is likely to reduce shipping costs.

The location of merchandise in the warehouse is most efficient when based on current and expected volumes of Internet activity anticipated by the distribution center. Order processing and picking, order preparation and management and interaction with order shipping systems, are all scaled to support demand.

As this report indicates, the use of e-commerce, m-commerce and s-commerce is increasing. Retailers with a borderless approach to business will enhance their opportunities and stay ahead of the competition.

This report is available for download on the NAIOP website.