Speedy Delivery Drives Five Supply Chain Trends

Fall 2013

Omnichannel retailing (the phenomenon through which consumers make purchases via many different “channels,” including the Internet, mobile devices, catalogs, and stores) and increasing consumer demands for same-day delivery are forcing retailers to adapt their supply chain networks and store formats to remain competitive as the market is increasingly driven by e-commerce. Jones Lang LaSalle (JLL) believes that retailers’ supply chains will change so much as a result of these evolving demands that they will be completely unrecognizable in just five years. 

In a recent interview, Kris Bjorson, international director and leader of Jones Lang LaSalle’s Retail/E-commerce Distribution Group, observed that all retailers are grappling with the issue of how to enable consumers to touch and explore products wherever and whenever they want to — as well as how to deliver those products faster and more efficiently. All retailers, he said, must determine what and where their inventory mix should be. Many different types of pilot projects aim to meet this challenge, he said, but currently the majority of retailers rate themselves only a four out of 10 in implementing successful omnichannel strategies.

In JLL’s view, the following five key retail supply chain trends will drive this dramatic shift in retail logistics:

1) Omnichannel retailing. Retailers must create a seamless experience for consumers so they can shop on their computers, mobile devices, and/or in a store. They must also be able to pick up or return products they have ordered online to a store.  

2) Internet sales tax legislation. While the industry knows that changes to legislation that eliminate the Internet sales tax loophole will be profound, the jury is out on how the specific implications will unfold — and on who the winners and losers will be.

3) 3D printing/manufacturing. New technology will enable manufacturers to bring new products to market less expensively. It also will allow consumers to design their own customized products, and enable some brick-and-mortar stores to offer walk-in customers tools to create precisely the product they want. In addition, this technology could lead to the development of more innovative products (thanks to lower R&D costs); smaller, more content-specific shops; and super-customized products (including items such as shoes and snowboards).

4) Category killing. The increasingly widespread use of digital devices will enable some books, music, computer games, and other entertainment to be made available as download-only purchases. This will transform the retail supply chain because prices can decrease as the infrastructure needed to ship, store, and move goods is eliminated, replaced by only marginally increased data storage and management costs.  

5) Adaptive reuse of vacant retail space. This could include “pop-up” temporary stores where large brand retailers would showcase a new product or a guest designer to create buzz and drive sales. Jones Lang LaSalle also noted that vacant retail space is being used by schools, churches, clinics, fitness centers, and dental offices. Both retailers and retail landlords must be creative in repurposing vacant retail space as the sector evolves, added Bjorson.

headshot od Kris Bjorson

Kris Bjorson

What is clear, Bjornson remarked, is that if retailers want to provide one-day service, the distribution network — which until now generally has been set up to provide two-day service — must change. That means that retailers are seeking distribution centers based on the following criteria: first, by population density; second, by ground transportation hubs and other trucking service providers (in addition to UPS and FedEx); and third, on the size and quality of the workforce, with an eye to one that is sufficiently skilled and flexible enough to handle seasonal spikes, such as back-to-school and holiday sales.  

Meanwhile, distribution facility size continues to get bigger, rising from 500,000 or 750,000 square feet to 1 million square feet or more. Bjorson also noted that to accommodate e-commerce, these facilities need to be taller (36 to 40 feet clear) and must provide two to three times the amount of parking available at conventional distribution facilities. 

Not surprisingly, it has become more of a challenge to find 80 usable acres near an airport and ground transportation in major markets. Bjornson advised that this is where leading developers can differentiate themselves from others, by securing the land to support these requirements, getting all needed approvals, and being ready to go when the need arises. Some developers are opting to build speculatively, but for those who do not, the ability to offer an integrated team that can work seamlessly to offer “speed to completion” is a competitive advantage. The faster a developer can move from contract execution to delivery of product, the better; even one to two months earlier than others is very meaningful, he said.

For retailers, the ongoing dynamic of service versus cost is a constant concern. Transportation costs are rising, as are workforce costs, even in “third-tier” countries, Bjorson said. Labor conditions in these countries have become more of an issue for several major global retailers. Will this situation result in some manufacturing returning to the U.S.? If so, how would that affect the supply chain? It is probably too soon to tell.

It is also too early to determine what impact automated systems will have on distribution facility size and workforce requirements. They are not likely to become the norm, Bjorson said, noting that most retailers will focus on the question of what the return on investment would be on an automated facility, and likely will opt to use labor instead of capital to accomplish their distribution goals — or, perhaps, will choose to automate one facility to see how it works before making a larger investment.