Top 5 Challenges Facing Retail Supply Chain & Logistics, Right Now
With Amazon having long cemented its place at the top of the retail food chain, other brands can often be left feeling how David must have felt squaring up to Goliath.
In order to combat Amazon's incredible logistics capabilities, retailers must come up with unique and innovative ways of bringing products from manufacturers to consumers. Industry 4.0 technology is helping in this regard, with dozens of fantastic devices and concepts making supply chains more effective, streamlined, and efficient.
Retailers who are yet to incorporate this technology into their supply chains need to evolve in order to survive in the post-Amazon landscape. However, technology is only part of the solution when it comes to the retail supply chains of the future. There are many more challenges facing the industry which must be tackled head-on.
#1 Cost Reduction Within the Supply Chain
With Amazon having unprecedented buying power, allowing it to offer its products at often ridiculously low prices, it can be difficult, if not impossible, for other retailers to compete on their level.
This is leading companies to try to reduce the costs of their supply chains as much as possible. Every level of the supply chain can be subject to cost reduction, including inventory management, warehouse space, supplier relationships, transportation modes, last mile, and more.
Starbucks offers a great example of how brands can reduce costs in the supply chain. During a review of its logistics operations, the company found:
- Fewer than 50 percent of outlet deliveries were arriving on time
- Several poor outsourcing decisions had led to excessive 3PL expenses
- The supply chain had (like those of many global organizations) evolved, rather than grown by design, and had hence become unnecessarily complex
"In order to meet these objectives, Starbucks divided all its supply chain functions into three key groups, known as plan, make, and deliver," reports the Logistics Bureau. "It also opened a new production facility, bringing the total number of US plants to four. Next, the company set about terminating partnerships with all but its most effective 3PLs. The remaining partners were then managed via a weekly scorecard system, which was aligned with renewed service level agreements. By the time Starbucks' supply chain transformation program was completed, the company had made savings of more than $500 million."
Inventory management is also a key component of cost-cutting, with less stock meaning fewer wasted/unsold products and associated costs. More efficient supply chains help facilitate this. When companies can acquire stock more quickly, the need for large inventories lessens, reducing end of season clearance sales and the resultant lower profit margins.
#2 The Driver and Labor Shortage
The retail industry is presently enjoying a boom period with people spending more than they have over the previous few years. This is causing a knock-on effect where legacy supply chain organizations are finding it difficult to keep up with demand.
A severe shortage of drivers is preventing carriers from adding the necessary capacity to meet this need on a freight level, but there's a staffing issue across the whole industry. A growing talent gap as the industry fails to attract young people, the number of Baby Boomers now reaching retirement age and taking their knowledge, skill, and experience out of the workforce with them, and the increase in minimum wage requirements meaning companies are unable to justify the cost of extra hiring, are all conspiring to create and worsen this problem.
"Organizations face huge challenges from the pace of business change, accelerating privacy regulations and the digitalization of their industries," said Managing Vice President at Gartner, Matt Shinkman. "A common denominator here is that addressing these top business challenges involves hiring new talent that is in incredibly short supply. Organizations face this talent crunch at a time when they are already challenged by risks that are exacerbated by a lack of appropriate expertise. Previous hiring strategies for coping with talent disruptions are insufficient in this environment, and risk managers have a key role to play in collaborating with HR in developing new approaches."
#3 Automation and Robotics
One answer to the shortage in labor is the onslaught of automation and robotics technology. Amazon now has a workforce of over 100,000 robots working in its warehouses - picking orders and moving stock around.
Robots are helping supply chains become safer as well. The machines being developed by companies such as Hamilton Robotics can safely handle hazardous chemicals and other substances, with absolutely no risk to human health or life.
Artificial intelligence-powered automation is helping firms use data more efficiently and effectively than ever before. By breaking down the silos - separate data streams which previously had no way of interacting with one another - in enterprise data, artificial intelligence helps disparate sections of the business communicate and cooperate as one.
Amazon and many other brands, including Dominos and Food Panda, have been experimenting with using drones - both aerial and ground-based - to complete the last mile of delivery. This final leg of a product's journey to the customer's address is the most labor-intensive and expensive for brands, so the ability to complete it with robots has the potential to further reduce costs and increase efficiencies in this area.
Internet of Things technology is allowing for stronger connections between devices, allowing containers, sensors, data centers, vehicles, and more to communicate with one another and cooperate at a level that was previously impossible - all without the intervention of human operators.
FourKites is using connected technology to offer its clients unprecedented transparency when it comes to tracking global shipments. It aims to improve on-time delivery rates by using AI to calculate accurate shipping times.
#4 Forecasting and Predictive Analytics
It's fair to say that the ability to see the future is a gift all businesspeople would like to possess. However, while actual superpowers may still be the stuff of comic books and movies, advances in forecasting and predictive analytics technology are enabling businesses to gain greater insight into future events.
Data and artificial intelligence-powered analytics can make predictions based on numerous variables and calculations which enables real-time decision making and the detection of early warning signs of, for example, issues with deliveries which could lead to delayed shipments. This allows supply chains to compensate for any issues in a proactive rather than reactive fashion.
"Analytics make it simple to incorporate critical information from other supply chain solutions and external sources like weather and traffic," said leading predictive analytics platform provider, Voxware. "See and correct issues around accelerating fulfillment, asset allocation, workforce optimization and other factors that can make or break customer satisfaction. One view of all essential information eliminates the need for multiple screens so you can make accurate and appropriate decisions in less time."
In a nutshell, predictive analytics is like a crystal ball for business.
#5 End to End Visibility in the Supply Chain
Blockchain has been making headlines ever since the cryptocurrency boom of a few years ago. However, while cryptocurrencies failed to translate into a replacement for traditional currencies as some predicted, the blockchain technology which underpins them shows great promise for many industries.
The transparent ledger concept on which blockchain operates is perfect for supply chains as it enables all parties with an interest in a shipment to access and track the progress of that shipment. Should something go wrong with a shipment - temperature control falling outside of acceptable parameters resulting in spoiled products, for example - the point at which the error occurred can be established and dealt with.
However, blockchain implementation is not without its hurdles to overcome.
"To build a complete blockchain solution you will likely need to incorporate off-chain components and data in the overall solution," said enterprise blockchain platform provider, Kaleido. "There will be files too large to fit on the chain itself that will need to be shared, which requires private end-to-end secure communications. Each organization will have its own application tier with APIs, caching layers, identity masking, key management, app integration with back-end systems and much more. To complicate things even further, each organization in a consortium will need the ability to run fully customized versions of these applications."
Blockchain is short on real-world success stories right now. However, with huge brands such as IBM and Amazon Web Services also working to bring blockchain technology to enterprise applications, we will likely see these hurdles overcome in a short time.
Final Thoughts
As with any industry, retail logistics has its share of challenges to overcome. However, by embracing the opportunities presented by Industry 4.0 technology and other contemporary business practices, these challenges can be met, and the industry can grow into a more effective and profitable machine.
All these and more are set to be hot topics at Retail Delivery Connect 2019, being held in August, at The Westin Fort Lauderdale Beach Resort, FL.
Please download the agenda today for more information and insights.