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Retail supply chain study paints an optimistic outlook for future growth

As the economy continues to gradually show signs of improvement, retail-based shippers are being proactive in shifting from cost-cutting to growth. That was one of the main findings of the Third Annual State of the Retail Supply Chain report by The Retail Industry Leaders Association (RILA) and Auburn University.

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As the economy continues to gradually show signs of improvement, retail-based shippers are being proactive in shifting from cost-cutting to growth. That was one of the main findings of the Third Annual State of the Retail Supply Chain report by The Retail Industry Leaders Association (RILA) and Auburn University. The report was sponsored by Accenture Consulting.

Data findings and takeaways of the report were based on interviews with roughly 200 retail supply chain executives.

Some of the report’s primary findings included:
-an emphasis on a balanced service/cost strategy and stronger cross-channel alignment, with the top retailers realizing that efficiency, effectiveness, and alignment are key in succeeding in a multi-channel retail environment;
-the ability to manage demand shifts from in-store to online and mobile methods;
-retailers collapsing their supply bases to fewer manufacturing points

In one clear sign that the economy is picking up steam, the report found that 64 percent of its respondents are projecting higher revenues in 2012 compared to 2011, with only two percent calling for a decline in revenue. And it also noted that the biggest areas where retail shippers will invest are software & technology, process improvement; new facilities, upgrading facilities, management development, and workforce training.

“After a very trying downturn, the current level of enthusiasm and confidence among retail supply chain executives was refreshing,” said Brian J. Gibson, Ph.D., professor, Auburn University, on a TweetChat hosted by RILA.

When asked to describe their supply chain strategy and strategic emphasis for the upcoming year, a balanced strategy—between cost and customer service—came out on top for the second straight year, according to respondents. Rounding out the top three were supporting growth and customer service.

Another key area was multi-channel dexterity, which stems in large part from the ongoing advent of e-commerce sales, which grew by more than 15 percent to $35.3 billion this past holiday season, according to data from Forrester Research. And with Forrester calling for U.S. e-commerce sales to grow ten percent annually, the report explained that with increased e-commerce activity come more related challenges for the retail supply chain.

These challenges include things like shipment size variation, order filling processes and delivery methods, and an inconsistent SKU mix of multi-channel retailers, with less than 18 percent of respondents saying they offer the same SKUs across channels.

“Multichannel e-commerce is here to stay,” said Casey Chroust, RILA EVP of Operations, on the TweetChat. “Retailers recognize this evolution is one they need to integrate into their supply chain operations.”

The topic of how global supplier bases have become for retailers over the last decade was made clear in the report and is something which is expected to continue.

What’s more, the findings indicated that while sourcing in China is expected to remain constant, surveyed retail supply chain executives said they anticipate a 5-to-6 percent loss of domestic sourcing to countries other than China. The report’s authors explained that this trend has led to retail shippers strategically consolidating suppliers in order to manage risk associated with supplier underperformance.

As for the future of global sourcing, the report revealed that while non-domestic sourcing of product and support services will continue to grow in the next few years, China may not end up being the “focal point” for expansion. Pacific Rim at 30 percent and Southeast Asia and at 20 percent are expected to account for half of all new sourcing over the next five years, with North America and South & Central America expected to account for about 45 percent over the same period.

The top reasons for these sourcing location shifts were rising wages, supply chain risk, labor shortages, and rising transport rates. But interestingly the report pointed out that these geographic shifts have to do with suppliers’ opportunistic moves to avoid problems, with retailer desire for nearshoring not the main driver.

“The potential for nearshoring still isn’t as big as originally, while there is some shifting of global sources,” said Gibson.

But Chroust noted that retailers are still interested in nearshoring due to its ability to shorten order time cycles and potentially reduce supply chain costs.

While the retail supply chain becomes more complex, the need to readily available accurate information is vital. This is where the role of technology comes into play, with the report showing that software and technology spending was the number one supply chain investment category in 2011, which was a 30 percent annual increase.

And more than 83 percent of surveyed retail supply chain shippers said they plan to maintain or increase current IT spending levels. The top four technology-related deployment areas, noted the report, are inventory management, warehouse management, demand planning, and transportation management.

“Retailers are continuing to invest in software and technologies that improve supply chain planning, execution, and integration,” said Gibson.


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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Article Topics

Retail Supply Chain · RILA · All Topics
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