Logistics business: RILA study hones in on retail supply chains strengths, concerns, and outlook
October 19, 2010
The pace of the economic recovery and strategies to meet economic challenges, coupled with opportunities to refine capabilities, increase efficiencies and drive down costs, are among top of mind objectives for retail-based shippers, according to the findings of a recent study conducted by The Retail Industry Leaders Association (RILA) and Auburn University.
The study, entitled the 2010 “State of the Retail Supply Chain Study,” focuses on current trends, leading practices, and the major issues impacting strategy and planning of retail supply chains, according to the study’s authors. And its data findings and takeaways are based on feedback from roughly 175 retail supply chain executives through a series of phone, panel, and Web-based interviews.
“Supply chain management has played, and continues to play, a strategic role in retail organizations throughout the recession and remains a key driver of business success and competitive advantage in today’s challenging market,” said Dave Reiff, senior vice president, National Distribution, Wal-Mart Stores, on a conference call earlier today.
Along with the economic recovery, some of the biggest issues facing retail supply executives were infrastructure capacity and condition, transportation rate increases, logistics expertise availability, carrier capacity and availability, and supplier financial stability. The study indicated these issues represent“sharp contrast” from the 2009 study’s findings, which found these issues to be the least of respondents’ worries, resulting in a shift from survival mode to future growth opportunities.
Infrastructure capacity and condition are coming back to the forefront for retail supply chain executives, due to lack of meaningful progress on that front in 2008 and 2009, according to Brian J. Gibson, Ph.D, Professor, Auburn University.
In terms of transportation rates, Gibson explained that some retailers are getting a little frustrated due to what described as “saber rattling” going on by carriers about raising rates, coupled with a lack of sufficient capacity and drivers.
“Carriers feel like they helped retailers survive during the tough times, and now they are turning their backs on [them],” said Gibson. “There are a lot of challenges and issues out there they have to overcome, but it is interesting that retailers are back to focusing on growth-related supply chain issues.”
RILA Executive Vice President of Retail Operations Casey Chroust said internally this is a reflection of retail supply chain executives working closer within their own organizations, which was crucial towards companies’ survival during the depths of the recession. Subsequently, Chroust said this has led to higher expectations for retail supply chain management executives and teams to provide a real balance of excellent service, a high level of reliability, and responsiveness. And as CEO’s become more interested and engaged in supply chain processes, supply chains need to deliver on their capabilities and strengths, he said.
He also noted that cost reduction initiatives implemented by retail supply chain executives have helped retailed tap into existing opportunities for retailers to streamline supply chains, lower bottom line costs, and save billion across the industry. And going forward Chroust said these cost structure enhancements and efficiencies will enable retailers to thrive as the economy continues to improve.
In last year’s survey, 36 percent of respondents noted they were directly focused on supply chain cost control, and this year 42 percent said they were focused on balancing cost and service requirements, along with a heightened focus on store support. Gibson said this shows how retail supply chain executives are refining their strategies and “becoming more directly engaged in traditional merchant activities, and their distribution role is going well beyond getting into a store’s back door and [looking] at a broader supply chain strategy and moving upstream in the supply chain to take greater control.”
He added that is happening as retail supply chains are embedding people in teams within organizations to assist with store metrics and applying supply chain metrics to in-store logistics activities, focusing on generating greater visibility for the merchant for items both on shelves and in distribution centers. Other examples include getting more involved in vendor negotiations and controlling more inbound flow of merchandise. One retailer told the report’s authors that it is even considering creating its own NVOCC (non vessel-operating common carrier) to manage its own freight and then offer that service to other retailers.
The study also examined best-in-class capabilities for retail supply chains, focusing on visibility, being more proactive and responsive, and becoming more adaptable to changes in the market, becoming much more consumer-centric and meet rapidly-changing needs. This, explained Gibson, is not about cutting back inventory, as much as it is about getting more merchandise into retail supply chains systems and developing flexible processes and multi-channel capabilities.
Looking to the future, some of the biggest issues on the retail supply chain horizon center largely around business and environmental processes. According to the report, roughly 30 percent of the respondents indicated that both an emphasis on sustainability and related costs and rising oil prices and their impact on network design were the two biggest long-term supply chain planning issues followed by roughly 18 percent focused on government regulation and compliance costs and nearly 15 percent focused on international carriers’ financial health and loss of capacity. Slightly more than 5 percent said domestic carriers’ health and loss of capacity is a major long-term issue.
Other long-term issues cited by respondents include international freight service, multi-channel retail supply chain management, and technology enhancement.
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