Retail Supply Chain 2019

TheState of
Retail Supply
Chain
2019
All-Digital
Issue
The best-read,
most popular
retail stories of
the past year!
A SPECIAL ANNUAL SUPPLEMENT TO
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19_DGTL_COV.indd 2 6/29/19 3:42 PM
SPONSORED CONTENT
By Mike Pallo,
Vice President of Transportation Sales at Kenco
OPTIMIZING YOUR
TRANSPORTATION
STRATEGY:
How to Lower Freight Shipping
Costs and Improve Efficiency
T he push to lower costs impacts nearly every part of your business. When
it comes to the supply chain, transportation makes up a large portion of
the logistics budget, placing freight shipping costs in the spotlight as your
ple, shipping ten pallets in one day is more efficient than shipping two
pallets every two days. To consolidate shipments, encourage customers to
place larger orders by adding benefits like free shipping on orders over a
company continues to grow and e-commerce sales become a cornerstone certain dollar amount. When working with retailers, provide incentives to
of your business. In fact, 24.7% of organizations cite delivery costs as the ordering in bulk to save on overall costs and increase profits.
biggest challenge they are facing when it comes to B2C e-commerce. Additionally, combining smaller shipments with larger shipments is a strat-
To keep shipping costs from eating away at profits, you need to find ways egy many large companies leverage to realize cost savings. Consolidation
to reduce unnecessary costs without sacrificing the integrity of your prod- is more time consuming; however, the practice saves money by reducing
ucts and brand. By thoughtfully implementing changes, your business can labor costs and keeping dock bays open, while still allowing you to send
save on resources and lower costs at the same time. Below are five areas to customers the same product in a smaller volume.
examine when looking to reduce your organization’s freight shipping costs:
4. STRATEGICALLY DESIGN PACKAGING AND SHIPPING MATERIALS
1. LEVERAGE DIFFERENT TRANSPORTATION OPTIONS When examining your freight efficiency, take a critical look at your packaging
Creating a mix of the three primary shipping options – ocean, air and design and specifications. Since warehousing and transportation account for
ground – not only improves delivery times for customers but also lowers a large portion of supply chain spending, cutting the amount of space each
costs. For example, ocean shipping is often less expensive than shipping product takes up helps you get the greatest value out of every shipment. Be
by air, particularly when it involves international shipments. Locally, using sure to select shipping materials that fulfill your requirements in the most
railroads to send orders can be more cost-effective than truck deliveries. economical way.
Outsourcing your transportation is also an attractive cost-cutting option. Beyond the product itself, you can also minimize the amount of support
Rather than paying a premium to manage your own transportation fleet, packaging in your shipments. While airbags, strapping, blocking and brac-
you can realize savings by partnering with a logistics transportation compa- ing are important tools for protecting goods from being damaged during
ny. When selecting an outsource partner, remember to hire a reliable and transit, it is critical to discuss the optimal amount of support packaging with
reputable broker to achieve savings without jeopardizing quality. your carrier prior to shipment. Using the right amount of support packaging
reduces supply costs while also freeing up additional space for products to
2. CREATE LONG-TERM CARRIER RELATIONSHIPS be included in the delivery.
Rather than shopping around for the next best deal, it is beneficial to nur-
ture a long-term relationship with carriers. Building a rapport with carriers 5. SHIP ON LOW-TRAFFIC DAYS
creates transportation management advantages that can deliver value for Consider opportunities to schedule shipments on off-peak days like Monday
the entire company. By contracting with carriers, your organization has or Friday. When looking for opportunities to ship on low-traffic days, it is
access to a more efficient network with the lowest number of dead miles important to keep in mind that many customers look to have their products
since carriers can find other customers in your area to optimize shipping by Thursday to be stocked and prepared for the weekend. Shipping off-peak
strategy. With a larger customer base, carriers can provide better rates to also depends on the type of product, as perishable items have a much
your organization as well. shorter shipment window.
You can also build networks and reduce costs by contracting a steady
lane volume. By demonstrating loyalty to a carrier, you can help to protect With the right transportation management processes in place, shipping
your organization against tightening capacity. When capacity pressure hits your products does not have to be a burdensome expense. To reduce costs
the market, carriers are more inclined to prioritize the freight of long-term and increase overall profitability, utilize the right transportation options,
customers who have dependable freight volumes. leverage the power of carrier relationships, look for consolidation oppor-
tunities, design your packaging economically and schedule shipments off-
3. CONSOLIDATE YOUR SHIPMENTS AND GOODS peak. As your shipping needs evolve, continue to look for ways to improve
Try to ship more product, less frequently to reduce freight costs. For exam- strategies and innovate your approach to freight costs.
SCQ19_kenco.indd 3 6/29/19 3:43 PM

The State VOLUME 8 NO. 1
of Retail
Supply The best-read, most
popular articles on logistics
and supply chain strategies
Chain 2019 and innovations from

DC Velocity and CSCMP’s
All-Digital Issue Supply Chain Quarterly
5 FROM THE EDITOR

The brave new world of retail
8 HOW BACK-OF-MIND
BACKROOMS ROB RETAILERS
OF PROFITS
BY LITA DAS AND CHRIS CAPLICE
Many retailers pay little or no attention to
their backroom operations, or to how they
impact store performance and profitability.
Taking the time to make backrooms more
efficient will improve both revenue and
customer service.
12 ROBOTS CARRY THE LOAD

FOR 3PLS
BY BEN AMES
Once dismissed as too expensive for
fulfillment work, robots are rolling into
third-party warehouses and taking
operations to the next level.
2 The State of Retail Supply Chain 2019
19_DGTL_TOC.indd 2 6/29/19 3:46 PM

16 ARE WE THERE YET? 46 TECHNOLOGY TO THE RESCUE
BY TOBY GOOLEY BY VICTORIA KICKHAM
Some retailers are finally making strides in IT solutions can help retailers improve
their efforts to master the omnichannel game. worker productivity in the brick-and-mortar
But others still have a ways to go. store, leading to better service and higher
customer satisfaction levels.
20 STRIKING THE RIGHT BALANCE

BY VICTORIA KICKHAM
Retailers need more sophisticated technology
to manage inventory in an omnichannel world. 48 ADDING NEW TILES TO THE
Tools that improve visibility and flexibility are OMNICHANNEL MOSAIC
at the top of the list. BY BEN AMES
As retailers continue to expand their
omnichannel service offerings, they’re
24 URBAN FULFILLMENT: THE increasingly turning to a traditionally
BATTLE FOR CITY SHOPPERS underused resource: the brick-and-
BY BRIAN GIBSON, CLIFF DEFEE, RAFAY ISHFAQ, mortar store.
AND BETH DAVIS-SRAMEK
More and more people—especially young
people—are moving into cities. To reach this
increasingly important market segment,
retailers need to find a profitable and efficient 52 LIVIN’ IN THE FUTURE
way to do urban fulfillment. BY VICTORIA KICKHAM
The race toward automation continues, as a
rise in goods-to-person fulfillment, increased
34 THE EVOLVING RETAIL STORE adoption of warehouse execution systems, and
BY VICTORIA KICKHAM greater use of autonomous mobile robots top
Retailers adapt in-store fulfillment processes to the list of material handling technology trends
meet customer demand for convenience and to watch in 2019.
faster delivery.
38 DELIVERING ON “DIRECT TO
CONSUMER” IN THE CPG INDUSTRY
BY GURRAM GOPAL AND
ALBERT MACARRON FABREGAT
Selling direct to the consumer poses an
attractive option for consumer product goods
(CPG) companies looking to grow sales. But
do the benefits outweigh the risks and
challenges?
WWW.AGILEBUSINESSMEDIA. COM
The State of Retail Supply Chain 2019 3
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our expertise working for you
We pride ourselves on making your business better and we've
done so for over 70 years. Our hands-on approach isn't
limited to assembling your custom-made material handling
solution; we also provide exceptional customer service,
maintenance, and training resources. Our experts are ready
to help you meet and exceed your goals.
19_DGTL_letter.indd 4 6/29/19 3:48 PM

The State of
Retail Supply
brave new
Chain 2019
The
world of retail
W elcome to The State of the Retail Supply
Chain. In this, our 2019 special dig-
ital issue, we feature selected articles from
And because we’ve created it in digital format,
you can access this special issue anytime, any-
where on your desktop or via mobile device,
CSCMP’s Supply Chain Quarterly and DC including our very popular tablet version for
Velocity that focus on retail supply chains and iOS and Android. If you don’t have the tablet
the innovative technologies that enable them. version yet, you can download the free apps at
Anyone with a computer and a mouse can www.dcvelocity.com/mobile and www.supply
attest to how the Internet has transformed chainquarterly.com/mobile.
commerce during the past decade. We have Included in this edition, we see how chang-
seen many storied retail brands fail to adapt, es in demographics and the growth of urban
resulting in their premature demise. Many logistics impact retailers. We examine how
others are barely breathing. Their problems robotics and automation help distributors con-
can often be traced back to ineffective supply trol costs, while providing needed throughput
chains that don’t allow them to compete in a in an era of limited labor. Technology is not
world where Amazon and a few other online just limited to the warehouse. We also explore
players dominate. And it will only get worse. how stores are adopting new technologies and
Many experts predict that digital commerce software to enable them to become mini ful-
will comprise 70 percent of all retail transac- fillment centers. And we examine the oppor-
tions by 2025. tunities and pitfalls of companies bypassing
While some retail distributors continue to the retail channel altogether and sell directly to
struggle, others have learned to leverage their consumers.
brick-and-mortar stores with a viable online Even if you are not involved directly in retail
presence. Using combinations of warehouse distribution, we have already seen how online
automation, visibility tools, and distributed retailers, such as Amazon, have changed the
order management strategies, these retailers expectations of every transaction—B2C and
are adapting to meet the needs and wants of B2B alike. One or two-day delivery is the norm
their customers. and that window is shrinking progressively.
During the past year, both DC Velocity Learning the lessons of how retailers meet these
and CSCMP’s Supply Chain Quarterly have challenges will help all of us navigate the brave
addressed this brave new world of retail com- new world ahead.
merce. And in this all-digital edition, we have
selected the best retail-related articles from
the 2018 print editions of both publications Enjoy,
to create this collection of ideas, practical
case histories, and profiles of technological David Maloney
advancements. The articles include thought Editorial Director
leadership, strategy, and tactics retailers have DC Velocity
used to not only survive, but actually thrive. CSCMP’s Supply Chain Quarterly

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One that can deliver efficient mechanization and state-of-the-art,
real-time software solutions.
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BY LIT A DAS AND C HR IS C AP L I CE
The State of
Retail Supply
Chain 2019
How back-of-mind
backrooms rob
retailers of profits
Many retailers pay little or no attention to their backroom operations, or to
how they impact store performance and profitability. Taking the time to make
backrooms more efficient will improve both revenue and customer service.
W
hen designing the layout of their stores, retail- store with excessive costs and waste, which eats into profit
ers understandably pay close attention to the margins.
front spaces—the places where consumers pur- A clear picture of the relationship between backroom
chase goods and interact with staff. The dynamics of space and store profitability is depicted in Figure 1.
these customer-facing areas are relatively well understood. The chart shows how the annual profit achieved in a
Backroom spaces, on the other hand, tend to attract less 1,500-square-foot retail store changes as the available back-
attention and are not as well understood, especially in the room space changes.
context of their impact on store performance. Initially, increasing the backroom space allocation
However, our research shows that retailers have a sub- increases product-related profit because the larger space
stantial opportunity to increase revenue and improve carries more inventory. (A 1,500-square-foot store can
customer service by increasing the efficiency of backroom reap nearly US$300,000 more profit annually when the
operations—especially at a time when the rise of online backroom space is increased to 150 square feet from 75
sales and omnichannel business models is redefining the square feet, or from 5 percent to 10 percent of the total
functionality of retail outlets. store space.) A smaller and hence a more congested back-
This makes sense, as the backroom is the vital link room space could also potentially lead to larger in-store
between the store and the complex supply chain that sup- logistics costs (for example, labor costs), which have not
ports it. Consequently, it’s important that retailers allocate been included here.
the optimum amount of space to meet a store’s needs and However, these gains disappear when the backroom
manage that space as efficiently as possible. Neglecting reaches a certain size threshold. At this point, the amount
these demands can exact a high price in terms of store prof- of revenue that the store can earn is limited by the demand
itability and service levels. observed at the store. Additionally, too much backroom
space cuts into the amount of square footage devoted to the
SPACE AND PROFITABILITY front room—the demand-generating part of the store that
Backroom spaces make a major contribution to store prof- has a direct impact on maximum revenue potential.
itability. If the amount of inventory held in the backroom Previous research indicates that backroom operations
is too low, the retailer can lose sales because product is can have a significant impact on a store’s costs. In-store
not available when customers wish to make a purchase. operations can account for up to 50 percent of total costs in
Too much inventory in the backroom, however, loads the a retail supply chain,1 and the backroom is responsible for a
19_DGTL_backroom.indd 8 6/29/19 3:54 PM

T HIS AR T IC LE OR IGINALLY A PPE A RE D I N TH E Q 3 / 2 0 1 7 I S S U E O F CS CM P ’ S S U P P L Y CH AIN Q UARTE RL Y
major portion of those costs. For example, organizing and profit potential and to how backrooms are managed to
managing the backroom—especially a smaller, and hence support the store’s demand profile. Currently, store design
a more congested, space—incurs labor costs, and there practices give priority to front-of-store spaces, which is
are inventory holding costs associated with backrooms. understandable since this is the customer-facing portion
Equipping backrooms represents another cost, which can of outlets. However, more detailed analyses of how back-
be especially significant in businesses such as food service rooms impact store performance and profitability are need-
that handle perishable items. ed, and these factors should be given more weight when
Researchers have identified inadequate backroom orga- stores are designed or refurbished.
nization and planning (how backrooms are configured and Retailers would benefit from analyzing their backroom
how stock is arranged to meet the needs of the front space) operations and tackling the root causes of poor perfor-
as a major source of store stockouts.2 In the food-service mance. These analyses should study the way backrooms
business, the impact on customer service can be even more operate in relation to the demand for product, and then
pronounced because backroom spaces also function as pinpoint key factors that influence the efficiency of back-
production areas. of-store operations.
In short, the way backrooms are configured and managed
influences their ability to supply the product that is sold in SIZE, PROFIT MARGIN, AND IMPORTANCE
the store, and hence the store’s sales performance. Retailers Many factors affect the allocation of backroom storage
therefore need to pay more attention to the amount of space. Three that are especially important to consider
front and backroom space that will yield the maximum include the size of the packs that are stored, the revenue

The State of
Retail Supply
Chain 2019
yield of each individual item, and the importance of the packed. A coffee shop might receive cases of 36 croissants
item to the store’s operation. First we will introduce these that contain nine inner packs, each holding four pastries.
factors, and then we will discuss how, when considered Typically the outer pack will be discarded and the inner
together, they influence store profitability. packs are held in inventory. These inner pack sizes and
Pack size. The size of the packs received by stores from configurations impact the space occupied by the inventory
suppliers might seem like a relatively mundane detail. in the backroom, and hence the availability of sellable items
However, pack size can have a big impact on the back- in a multiple stock-keeping unit (SKU) setting where SKUs
room’s ability to function effectively, as the size of the unitsare competing for space in a constrained environment.
stored determines how much inventory can be shelved and Profit margin per item. Our research also highlights the
how accessible the items are. importance of optimizing for profit—rather than simply
Pack-size policies tend to be set at a corporate level, yet minimizing cost—when modeling for backroom space
backroom space constraints and customers’ buying pat- allocation, owing to the close and direct links between store
terns vary from store to store. Retailers need to work with backroom and front-room areas. For example, devoting too
store personnel and suppliers to determine which pack sizes much backroom space to items that have a very low revenue
are the most efficient for the configuration of particular yield can undermine the overall profitability of a store. For
backrooms and in light of the product demand in individu- this reason, when a retailer determines how much space is
al stores. This information can be used to better align store allocated in the backroom for a particular item, it should
replenishment systems with demand. consider the item’s revenue yield—along with the costs
As they conduct this analysis, companies need to look at associated with it. For example, if the value of the end item
two pack sizes: order and “storable” (also known as “intra- sold to customers is low, retailers need to ask themselves
pack”). Order size refers to the size of the units delivered by whether the amount of revenue generated by the item (or
suppliers, and this affects the quantity of individual sellable its ingredients) is too low to warrant the amount of space
units that the store has on hand. Storable, or intrapack, size it is allocated in the back room. The revenue generated by
pertains to the way the contents of larger units are often an item might not meet the targets set by management, for
instance.
For a food-service retail store, there is an
[FIGURE 1] RELATIONSHIP BETWEEN BACKROOM additional factor that should be considered in
SPACE AND STORE PROFITABILITY regard to profit margin per SKU: the distinc-
tion between (i) sellable items that go directly
$1,000,000 to the consumer’s hands and (ii) the SKUs
Annual profit obtained (in U.S. dollars)
$900,000 that are used in some combination to produce

$800,000 the former in the store. Hence, the profitabil-
$700,000
ity of an SKU is a function of the number of
sellable items that incorporate it, the quantity
$600,000
of that SKU that is used in each item, and the
$500,000 complementarity between the SKU and other
$400,000 SKUs (that is, all the SKUs required for the
$300,000
sellable item must be available to produce it).
Importance of the item. The relative impor-
$200,000
tance of items also needs to be considered
$100,000 when configuring a backroom space for a new
or refurbished store or revamping an existing
0 200 400 600 800 1000 1200 1400 space. Some items—cups in a coffee shop, for
Backroom space (in square feet) example—are essential; the store can’t deliver
the product without them.
THE DATA SHOWN HERE ARE FOR A 1,500-FOOT STORE. THE ANNUAL Another reason for deeming an item
PROFIT INCLUDES DIRECT PRODUCT PROFIT, LOST SALES COST, essential is that it is a signature item that is
INVENTORY HOLDING COST, AND THE COST OF WASTE. OTHER RELEVANT
COSTS LIKE IN-STORE LOGISTICS COSTS ARE NOT INCLUDED IN THE
being promoted by corporate. Other ingredi-
CURRENT VERSION OF THE MODEL BUT ARE BEING INCORPORATED IN ents are less important because they are not
FUTURE VERSIONS. an essential part of products, and therefore

should be allocated less backroom space in a constrained to the performance of backrooms and to analyze those
environment. factors in relation to store profitability. It can be used to
evaluate existing backrooms and to integrate the optimum
INFLUENCE ON PROFITS allocation of backroom space into the design of new outlets.
The way a retailer weights these various factors and builds The models we have developed are now being extended
these weightings into the operation of a backroom can have to include a more sophisticated valuation of front-room
a huge bearing on the profitability of the store. For example, spaces. The idea is to help retailers capture the trade-offs
a store might be making space-allocation decisions based between allocating backroom and front-room square foot-
only on the profit margin per item and the importance age and to achieve the optimum balance between the two.
of the item but without considering Looking ahead, the need to rethink
the item’s pack size. By failing to bal- Allocating and managing is more urgent approaches to backroom strategies
ance all three factors, the store could than ever, as new
be creating an inefficient backroom backroom space is more retailing models, such as the use of
operation that could inhibit its prof- stores to fulfill online orders, increase
itability. complicated than it might in importance. Typically, backroom
The research on retail backroom first appear, and spaces in retail stores have been per-
performance described in this article ceived as places for “overflow inven-
was carried out in collaboration with neglecting the factors that tory.” In the emerging competitive
a U.S. food retailer. In addition to environment, however, this approach
completing desk research, the project impact performance can is no longer tenable, and it is import-
team analyzed backroom operations exact a high price in terms ant to recognize the untapped oppor-
in 126 stores around four large U.S. tunities of the space.
cities—Atlanta, Boston, Chicago, and of store profitability and More research is needed on how
New York—and visited 20 outlets. backroom formats and management
The research sample was chosen to service level. practices impact the upstream supply
reflect different product mixes. chain. Also, the retail industry needs
One of the many findings was that having smaller stor- to explore new, innovative back-of-store configurations,
able packs within an order pack can lead to better space uti- such as the concept of multiple stores sharing a hub back-
lization and increased profitability for the same amount of room space.
space utilized in the store. Store-level data from our indus- Meanwhile, retailers can improve the performance—and
try partner revealed that reducing the storable pack size by hence profitability—of their outlets by recognizing that
15 percent for 30 percent of the top-performing SKUs (that backroom spaces represent a critical link in the retail supply
is, those that contribute the most to store revenue) increas- chain rather than an appendage to front-of-store spaces. c
es profit per unit of refrigerated, freezer, and ambient
equipment by 4 to 10 percent. Imagine the potential returns Notes:
if every SKU in every store could be analyzed in this way. 1. M. G. Sternbeck and H. Kuhn, “An integrative approach
to determine store delivery patterns in grocery retailing,”
BACKROOMS IN THE OMNICHANNEL AGE Transportation Research Part E: Logistics and Transportation
Allocating and managing backroom space is more compli- Review, 70 (2014): 205–224.
cated than it might first appear, and neglecting the factors 2. T. Gruen and D. Corsten, “Rising to the challenge of
that impact performance can exact a high price in terms of out-of-stocks,” ECR Journal, 2 no. 2 (2002): 45–58.
store profitability and service levels. There is also a price to
pay in the upstream supply chain. For example, supplier L I TA D A S ( L I TA D A S @ M I T. E D U ) I S M A N A G E R O F S UPPL Y
delivery schedules based on flawed store ordering practices CH A I N A N A L Y TI CS F O R O N L I N E R E TA I L E R W AYF AIR.
can increase costs and exacerbate customer service issues. PRE V I O U S L Y S H E WA S A RE S E A RCH A S S I S T AN T AN D
As part of our research with the food-service provider, we PH . D . CA N D I D A TE A T TH E M A S S A CH U S E T T S IN S T IT UT E
have developed a tool that helps retailers to understand the O F TE CH N O L O G Y ( M I T) CE N TE R F O R TR A N S PO RT AT IO N
impact of factors such as pack size on inventory levels and & L O G I S TI CS . D R. CH R I S CA P L I CE ( CA PL I C E @ MIT .E DU)
a store’s ability to meet customer demand. The tool enables I S E XE CU TI V E D I RE CTO R O F TH E CE N TE R AN D F O UN DE R
retailers to create a database of the factors that are critical A N D D I RE CTO R O F TH E M I T F R E I G H TL A B .

BY BEN AMES
The State of
Retail Supply
Chain 2019
Robots
carry the load
for 3PLs
Once dismissed as too expensive for
fulfillment work, robots are rolling
into third-party warehouses and
taking operations to the next level.
R
obots have long suffered from a bad rap in the That newfound flexibility holds particular appeal for 3PLs,
supply chain, often written off as expensive, which typically serve a diverse array of clients with equally
high-maintenance specialty tools that could only diverse handling needs.
generate a return on investment (ROI) under highly spe- For a recent example, you need look no farther than
cific circumstances. Greenwich, Conn.-based transportation and logistics pro-
Their reputation has been largely rehabilitated in recent vider XPO Logistics Inc. XPO has deployed robotic equip-
years, however, as labor shortages, rising wages, and an ment made by French automated handling and storage
explosion in e-commerce orders have pushed many ware- systems maker Alstef Automation S.A. at a facility in France
houses to their limits. Desperate for a solution, some com- that XPO manages for the McLean, Va.-based snack-food
panies are giving robotic systems another look, and they’re giant Mars.
finding that robot manufacturers have upped their game. Alstef supplied the operation with a robot with an artic-
Robotic solutions are still a long way from being the ulated arm that can handle 50,000 to 60,000 packages per
perfect fit for small businesses or operations that handle day, using grippers and a pneumatic system to pick up as
specialty items like oversized goods. But a growing num- many as five stacks of packages at a time to assemble pal-
ber of companies—particularly large third-party logistics lets, according to XPO. Encouraged by its initial success
service providers (3PLs)—are finding that the technology with the robotic equipment, XPO said in March 2018 it
can pay off fast. had launched a cloud-based warehouse management sys-
While that’s partly a result of falling prices, it has more tem (WMS) designed to support the quick launch of other
to do with recent technological advances. The latest gener- robotics-based distribution centers.
ation of warehouse robots offer the flexibility to handle a
variety of tasks—such as identifying, picking, and bringing ROBOTS THAT DELIVER
goods to people; palletizing cases; and loading and emp- Another industry player that has opted for the robotics
tying trailers—rather than a single specialized function. route is French 3PL Geodis Group, which launched a
19_DGTL_robotics.indd 12 6/29/19 3:56 PM

T HIS A R TI CL E O R I G I N A L L Y A PPE A RE D I N TH E A P R I L 2 0 1 8 I S S U E O F DC VE L O C ITY
pilot program using 30 autonomous mobile robots. The In addition to creating a better work environment, the
units, which were supplied by Wilmington, Mass.-based new process has allowed the facility to get more product
warehouse automation specialist Locus Robotics, have out the door. “Our labor force is more productive with
been deployed at a 139,000-square-foot warehouse in the robots than without. And every percentage point in a
Indianapolis. Geodis said it launched the program in an 10-percent-margin business is critical,” Douglas said.
effort to address a warehouse labor shortage in the region. It helps that the economics of robotics have changed
At the Indianapolis facility, the 3PL is using the robots greatly over the years. Robots have become more afford-
to help fill orders for one of its clients, an online vendor of able because the falling cost of components like circuit
women’s apparel that requires error-free manual picking boards and chassis has made them cheaper to manufacture,
from an inventory of more than 30,000 stock-keeping units according to Douglas.
(SKUs). The robots work in collaboration with human Maintenance costs have also come down, since much of
pickers, ferrying order bins around the facility to collect the complexity of robotics operations lies in their routing
items selected by the workers. and control software. That means the bots themselves can
The Locus robots go about their daily work with little to be tuned and repaired by Geodis’ in-house mechanics. “We
no human intervention. To initiate the fulfillment process, have our own technicians in the field, and let me tell you,
a robot automatically rolls up to the aisle and rack where if they can fix a lift truck, they can fix a robot,” Douglas
the desired item is stored, then “communicates” with the said. “If you open up one of these Locus robots, they’re not
worker at that station via tablet computer, displaying an R2-D2; it’s just caster wheels and a circuit board, and they
image of the needed item along with instructions on its can replace either of those.”
location and the quantity to be picked. After the worker
selects the products and places them in the robot’s bin, the ROBOTS PULL THEIR WEIGHT
bot drives itself over to the next location. Once the order is As for the outcome of the pilot, Geodis reports that the
complete, it delivers the bin to the packing station, where results have been “staggering.” Since the program began in
other workers prepare the order for shipment. October 2017, the 3PL has shipped over 600,000 units in
The new system expedites picking because workers no over 300,000 orders. Today, 80 percent of units are picked
longer have to roam the aisles in search of items or push to the robots.
carts full of inventory back to the packing station, Geodis Deploying robots for fulfillment work in the warehouse
says. To further accelerate the workflow, the system uses has also helped Geodis save on labor costs. On top of that,
software to calculate the shortest route for each bot to employee productivity has doubled and training time for
follow. new hires has been cut in half, the company says.
Douglas acknowledges that the 100-pound Locus bots
EVERYTHING'S BETTER WITH BOTS might not be as effective if Geodis were handling heavy
In a market where good warehouse labor is hard to find, pallets or large automobile tires at the DC. But they’ve been
the robots foster a better work environment for employ- a great fit for an operation that mainly handles small to
ees, according to Eric Douglas, executive vice president of medium-sized orders requiring a high percentage of each-
technology and engineering at Geodis. Picking units to the picks, he said.
robots has reduced physical demands on workers by elim- “Although goods-to-person robotics is relatively new,”
inating the need to trudge through the aisles pulling pick he added, “it’s showing up at the perfect time [to help users
carts and by minimizing travel overall. meet knotty industry challenges].”
The robots have also proved to be a good fit with the With those kinds of eye-popping results, robots are defi-
site’s multicultural work force. The messaging on their nitely speaking a language that any 3PL can understand.
screens automatically displays in the worker’s preferred Time will tell whether the technology catches on in markets
language, eliminating some of the frustrations caused by beyond the large 3PLs. But this much is clear: Robots have
language barriers. The Locus robots at Geodis’ Indianapolis the potential to transform fulfillment. And nobody’s put-
DC “talk” to workers in English, Burmese, Spanish, and ting them in a corner now. c
Chin, a Southeast Asian language spoken in Burma, India,
and Bangladesh. B E N A M E S I S S E N I O R E D I TO R A T D C V E L O C ITY.

SMALL-TOWN HARDWARE STORE SERVES COMMUNITY,
EXPANDS BUSINESS WITH PINK PROPANE FORKLIFT.
WISCONSIN BUSINESS BENEFITS FROM

PROPANE’S VERSATILITY, EFFICIENCY
MAZO HARDWARE & RENTAL
MAZOMANIE, WISCONSIN
COMPANY SUMMARY
While the owner describes it as a “traditional, small-town EQUIPMENT FLEET PROFILE
hardware store,” Mazo Hardware & Rental has proven to be
much more than that. A one-stop shop for the small town of
Mazomanie, Wisconsin — population 1,167 — the store serves 1 propane-powered forklift
its community by offering a wide variety of products and
services. The independent, family-owned business includes
its 6,700 square-foot hardware store, a full garden center,
a sizable fleet of light-construction and landscape rental
equipment, and a friendly, helpful staff known
to go above and beyond for its customers.
“We really do our best to open our hearts and our store to help
customers in whatever way that they might need,” said Renee
Zaman, owner of Mazo Hardware & Rental.
JUGGLING HEAVY WORKLOAD — AND MATERIALS “SINCE I’VE BEEN HERE, I’VE REALLY
The business’ multifunctional operation is no small OPENED UP PURCHASING BY THE
undertaking. Whether it’s pallets of salt for corporate
TRUCKLOAD AND THERE’S NO WAY I
customers, bags of feed for nearby farmers, or garden mulch
for local green thumbs, material is moving at a furious pace. COULD HAVE DONE THAT IF I DIDN’T
HAVE THIS FORKLIFT.”
In fact, material by the truckload is delivered almost daily,
meaning the company needs a way to efficiently move product
RENEE ZAMAN,
off the trucks quickly to keep its customers satisfied. OWNER OF MAZO HARDWARE & RENTAL

“YOU JUST UNSCREW THE TANK, FILL
IT UP, AND HOOK IT BACK UP. TWO TO
THREE MINUTES OF DOWN TIME, THEN
WE ARE READY TO GO AGAIN.”
RENEE ZAMAN,
OWNER OF MAZO HARDWARE & RENTAL
cylinder eliminates the need for additional expensive, heavy

batteries or downtime spent recharging. And because Mazo
Hardware also sells propane, they’re able to simply refill the
cylinder on-site.
For businesses without a propane tank on-site, the refueling

strategy can be tailored to their operation. For example,
companies can work with a local propane supplier to set up
a cylinder-exchange program, in which a supplier exchanges
empty cylinders with full ones in a cylinder cage located on the
PROPANE FORKLIFTS ENSURE EFFICIENT, company’s property.
CONSISTENT OPERATION Not only does Zaman’s forklift set itself apart thanks to its
Since 2009, the company has trusted a propane forklift to performance and reliability, the company’s propane forklift
keep its business running. Propane forklifts maintain 100 is also quite the statement piece — easily spotted by its
percent power throughout operation — pushing heavy loads vibrant paint job. The equipment was painted “girl power”
at full capacity faster and longer than electric forklifts — pink, inspired by Zaman, a former preschool teacher turned
enabling the Mazo crew to keep up with its daily demand and business owner and “Hardware Queen”. Truck drivers making
enhance productivity. deliveries to the store oftentimes saw Zaman, the primary
forklift operator, and were quick to offer a helping hand with
“Propane works really well for all of the pallet moving that we unloading materials. But her ability to handle the job in its
do around here,” Zaman says. “Electric just wouldn’t do it.” entirety is now communicated through her pink forklift.
In addition to handling heavier loads better, the life “I used to be a goddess and now I’m a queen,” Zaman says.
expectancy of a propane cylinder is also three times longer
than the life expectancy of an electric forklift battery. They
hold up so long in fact, cylinders typically last longer than the PROPANE SETS MAZO AHEAD OF THE COMPETITION
average lifespan of a forklift itself.
Mazo Hardware & Rental’s “girl power” pink propane forklift
The fuel’s strong performance record, and ability to handle a has proven to be a valuable, lucrative asset to the business.
wide variety of load weights, are a few reasons it’s continually For a small-town hardware store, their 2018 annual sale
a popular solution in the middle and top forklift weight calculations — 1.3 million dollars in revenue — speak for
classes. According to a survey conducted by the Propane itself. The store’s propane forklift has played an integral role in
Education & Research Council, propane-powered forklifts business expansion over the last several years.
dominate the middle weight class of forklifts (5,000 to
10,000 pounds), with 70 percent of fleet managers opting for Without a propane forklift, unloading materials by the
propane forklifts. Propane leads the top weight class (10,000 truckload would be a much more laborious undertaking.
pounds or more), too, as 51 percent of fleet managers opt for Zaman can unload nine pallets in roughly 10 minutes, while a
propane-powered forklifts. nearby hardware store has to unload by hand, breaking every
pallet down and rolling them into the store with a dolly —
Because of the harried pace of operations at Mazo, the because they don’t own a propane forklift. That method, as
company needs a forklift that could offer little-to-no you can imagine, takes much longer.
downtime. Whether in large operations or small fleets,
propane provides the quick refueling necessary to keep Learn more about how propane forklifts can impact business
material moving. Swapping out or filling up an empty propane productivity at Propane.com/Forklifts.

BY T OBY GOOLEY
The State of
Retail Supply
Chain 2019
Are we there yet?
T
Some retailers are he retail sector has been permanently disrupted by technology,
and retailers of all sizes are battling to manage technology’s impact
finally making strides on their business models. For many of them, gaining control of
in their efforts to master e-commerce, multichannel and omnichannel fulfillment, and customers’
expectations of ever-faster and customized delivery is a matter of survival.
the omnichannel game. To find out how companies are responding to these and other pressures,
the Retail Industry Leaders Association (RILA) annually polls supply chain
But others still have executives about their overall strategies as well as their experiences and
a ways to go. plans regarding several “hot topic” areas. As in the past, this year’s study
was conducted by Auburn University’s Harbert College of Business under
the leadership of professor Brian Gibson, with colleagues Rafay Ishfaq,
Cliff Defee, and Elizabeth Davis-Sramek. The researchers surveyed RILA’s
19_DGTL_rila.indd 16 6/29/19 3:59 PM

members; readers of Supply Chain Quarterly’s sister increasingly wide range of retail segments. But retailers
publication, DC Velocity; and companies that collab- are being cautious about the delivery services they offer.
orate with the university’s Center for Supply Chain Some interviewees said they would “move as fast on
Innovation. To round out the picture, the research [urban delivery services] as [their] customers demand
team conducted telephone interviews with supply it,” Gibson says. In other words, they are investing in
chain executives. various delivery options only when demand is suffi-
cient and the cost of providing those services can be
GETTING A GRIP ON CHANGE justified. One surprise: Although many people assume
The researchers conducted 20 interviews with retail that urban delivery only matters in a few big markets
supply chain executives, most of whom were chief like New York City and Los Angeles, respondents said
supply chain officers or senior vice presidents of supply they were working to meet rapidly growing demand
chain. All work for medium-sized for same-day and next-day delivery
to very large retailers; all but a in dozens of other urban markets
handful of those companies report Retail leaders have taken across the country.
annual revenues exceeding US$1 Increasingly, retailers are using
billion, and together, they account
control of their omni- urban stores as fulfillment loca-
for nearly US$1 trillion in annual channel operations and tions to accommodate their
sales. “BOPIS”—buy online, pick up
When asked about their overall have a game plan they’re in store—services. Some are also
strategy for 2018, many executives investing in small-footprint dis-
cited better management of omni-
ready to execute. tribution centers in urban areas
channel commerce as a top priori- that offer same-day delivery for
ty. Although a small “lagging” group of retailers are still a limited assortment of stock-keeping units (SKUs).
rolling out basic omnichannel capabilities, companies A third option mentioned by respondents is a “dark
that can be described as “leaders”—generally, the big- store”—a facility that’s set up like a retail store but
gest brand names—are looking at refining the omni- is used for assembling e-commerce orders, which are
channel strategies and practices they already have in then delivered to consumers or to pickup locations.
place, such as cutting delivery times to consumers and In Gibson’s view, the benefit of the latter two options
ensuring service consistency across all channels. Those compared with in-store fulfillment is that it avoids
companies, the researchers say, have come a long way disrupting store operations and offers quick access to
since their previous survey report was published. “Last backup inventory if a nearby store runs out.
year, we were still getting a lot of companies wonder- The cost of meeting consumers’ expectations is forc-
ing how to respond to the ‘Amazon effect.’ Now, retail ing retailers to rethink how they deliver orders in cities.
leaders have taken control of their omnichannel oper- Some are testing the use of employees to drop off pack-
ations and have a game plan they’re ready to execute,” ages on their way home from work. Others are setting
Defee says. up their own private fleets of local-delivery vehicles.
The interviews with retail supply chain executives But they’re most likely to use for-hire services, such
also zeroed in on several specific areas, including urban as Uber, Lyft, Shipt, and Instacart, because of their
fulfillment, relationships with third-party logistics ser- flexible capacity and variable cost structure, according
vice providers (3PLs), sustainability, and disruptive to Gibson.
technologies. Here is the research team’s take on the x Working with logistics service providers. As retailers
issues and trends the interviewees addressed. contend with changing business models, their rela-
x Managing urban fulfillment. As the array of prod- tionships with 3PLs are also changing. Their strategies
ucts consumers order online continues to expand, appear to follow two different paths. Several executives
urban fulfillment has become a major concern for an said they are seeking fewer, more strategic partnerships
19_DGTL_rila.indd 17 6/29/19 3:59 PM

The State of
Retail Supply
Chain 2019
with 3PLs in order to reduce complexity. This trend products are environmentally safe, and address prob-
is leading service providers to expand their portfolios lems like forced labor, but that focus didn’t necessar-
in hopes of becoming a “one-stop shop” for big retail ily carry over into supply chain activities.
accounts, Ishfaq says. Of course, when 3PLs expand The interviewees have not widely considered an
their reach and their service portfolios, their costs go issue that could have a major impact on their supply
up—and so do the prices they charge their customers. chain costs in the future: the conflict between sus-
That, he says, could undermine one of their core value tainability goals and consumers’ escalating demands
propositions: that they can handle logistics activities for fast, convenient service. “We asked them, ‘If you
more cost-effectively than their clients could on their ship one item to one customer in one box, what does
own. that do to your ability to meet sustainability goals?’ ”
That’s one reason why other executives are con- Davis-Sramek recalls. “The pretty universal response
sidering a different approach: taking some ware- was, ‘We’ve placed so much emphasis on fulfillment
housing and distribution activities back from 3PLs. and meeting customer requests that we haven’t really
“If a market was mature and the made that connection yet.’ ”
service demand was stable and Davis-Sramek expects that at
predictable, then some would talk The cost of meeting some point, retailers will come
about doing it in-house,” Ishfaq consumers’ expectations under external pressure to resolve
says, adding that these were all the tension between e-commerce
“really big players with thousands is forcing retailers to and sustainability. That pres-
of stores who see the scale in sure may come from nongov-
a particular brand or product rethink how they deliver ernmental organizations (NGOs),
category.” In addition, concerns orders in cities. perhaps through a study on the
about transportation capacity are impact of home delivery on the
prompting some to consider pri- environment. Or it could come
vate delivery fleets or dedicated contract carriage. in the form of regulation, such as a carbon tax
Still, interviewees said they would continue working or European-style regulations on packaging waste.
with 3PLs when expansion to a new market/location Nobody knows how far in the future that will happen,
or the rollout of new services was involved. but Davis-Sramek expects retailers will step up when
As customers put pressure on retailers to improve it does. “I think they’ll apply the same kind of inno-
their service, the retailers, in turn, expect 3PLs to “up vative thinking they used to develop omnichannel
their game,” Ishfaq says. But those expectations seem commerce,” she says.
to be changing faster than the 3PLs can keep up with. x Leveraging disruptive technology. Disruptive tech-
“That has put pressure on them from both a cost and nology is still more concept than reality for most
a performance-guarantee standpoint. It’s a pressure retailers. “There’s no single cutting-edge technology
cooker right now,” he says. “We could see failures or that everybody’s focused on,” says Defee. “They know
tougher going.” it’s coming, but nobody sees one they’re really bank-
x Achieving supply chain sustainability. How much ing on right now.” Technologies that were mentioned
priority retailers give to sustainability—which most frequently included artificial intelligence and
includes environmental, health, and safety compli- machine learning, which were seen as potentially hav-
ance and labor considerations—varies widely. Large ing a beneficial impact on such areas as demand fore-
companies that have published sustainability reports, casting, understanding customers’ preferences, and
made someone responsible for sustainability, or inte- identifying trends that will impact inventory plans.
grated it into their corporate culture considered it to Most, though, are just beginning to investigate
be very important, but for others, sustainability is not those and other technologies, such as robotics, block-
a strategic priority, Davis-Sramek says. Those compa- chain, and the Internet of Things. “There’s a lot
nies’ efforts often focused on things like energy and of interest and there’s monitoring, but not a lot of
fuel efficiency, where they can see a direct connection money invested,” Gibson says. “There’s still a healthy
to cost savings. Several executives said it’s critical that amount of skepticism about how these technologies
their sourcing organizations ensure that goods are will play in the supply chain area.” Return on invest-
in compliance with relevant regulations, make sure ment (ROI) is another top concern; Defee says one
19_DGTL_rila.indd 18 6/29/19 3:59 PM

interviewee called articulating an ROI to an omnichannel world, retailers ulti- TO B Y G O O L E Y I S CO N T RIBUT IN G
justify investment “the No. 1 challenge of mately must make decisions based E D I TO R O F CS CM P ’S S UPPL Y
disruptive technology.” on overall strategic benefit. ● CH A I N Q U A R T E RL Y .
Not surprisingly, then, when it comes
to new technology, retailers are focusing
on proven winners, such as analytics and
warehouse automation. E-commerce ful-
fillment is driving investment in those and
other technologies, but retailers are also
using them to improve store operations,
Gibson notes. For example, some are buy-
ing automated picking and sequencing
technology for their stores because the
automated systems do a much better job
of picking aisle-specific pallets or cartons
than a human can, thus allowing for faster
on-shelf replenishment.
COMMON PRINCIPLES
During the course of the researchers’
interviews, several common principles
came to the fore. One was that retailers
should ensure consistent service and prod-
uct availability regardless of how they are
interacting with customers. Another was
that they must become true omnichannel
organizations, leveraging inventory, tech-
nology, and distribution networks to get
to a single pool of stock. Omnichannel
success also requires the capacity to deliv-
er orders wherever and whenever the
customer wants them. “We’re going to Predictive Analytics To
hit that tipping point where a retailer’s
capacity to make last-mile deliveries will Expand Your Visibility
either be game-changing or it will bog
[the operation] down and get very expen-
Leverage your shipment, tracking,
sive,” Gibson says. and payment data. Get augmented,
Finally, the researchers say, retailers are predictive, and prescriptive analytics
starting to understand that being involved
in omnichannel does not mean they are to optimize your supply chain.
obligated to be “all things to all people.”
Instead, many are taking advantage of
advances in supply chain analytics to
judge whether their scope of offerings and
cost to serve specific channels and cus-
tomers are justifiable. How they respond
to the data will be driven by external com-
petition and/or internal strategies, Gibson
points out. Something may be costly from
ratelinx.com/analytics
a supply chain standpoint, he says, but in
19_DGTL_rila.indd 19 6/29/19 3:59 PM

BY VIC T OR IA K IC K HAM
The State of
Retail Supply
Chain 2019
Striking the
right balance
Retailers need more sophisticated technology to manage
inventory in an omnichannel world. Tools that improve
visibility and flexibility are at the top of the list.
F
or most retailers, striking the right balance She says many of the problems surrounding forecast-
between in-store and distribution center inven- ing replenishment and inventory management stem
tory levels has become a serious headache due to from retailers’ tendency to have different platforms
omnichannel requirements and the need to respond to and point solutions for managing inventory in different
changing customer demands more quickly than ever channels, which makes it difficult for them to get a clear
before. Such challenges are causing organizations to take view of inventory so that they can make good stocking
a closer look at how they manage inventory, especially decisions and, ultimately, provide the best possible cus-
if they are using multiple platforms to do so. For many, tomer service.
developing a singular view of inventory and improving “You can’t do [any of] that if you can’t see your inven-
flexibility across their networks are keys to managing tory,” McDonald explains. “It seems simple to say that,
today’s increasingly complex supply channel. but a lot of what we see is that customers manage inven-
“There are two key disruptors when it comes to inventory in different systems. … If your e-commerce orders
tory management,” says Michael Salmasi, co-founder come into a separate system from your brick-and-mor-
of New York City-based Veea, a platform-as-a-service tar stores, how will you effectively manage inventory
(PaaS) company that provides a suite of technology across channels? If there is not enough inventory in
solutions for business and consumer needs, including the warehouse, then you must determine priorities. It
retail. “One is omnichannel or cross-channel fulfillment, requires knowing the total picture.”
and the other aspect is that we are living in a more The best way to improve the picture is to make sure
dynamic marketplace. This is having a huge impact on there is a common and real-time view for managing
the way inventory is managed. E-commerce and omni- inventory and by implementing solutions that promote
channel [in particular] have become a huge burden for the fluid flow of information between systems, say tech-
managing supply chains.” nology experts such as McDonald, Salmasi, and others.
Those disruptors are making forecasting more diffi- What follows are some ways to make that happen.
cult too—and if your forecast isn’t right, your inventory
won’t be right, adds Patty McDonald, global solutions TACKLE ONE ISSUE AT A TIME
marketing director, Retail Solutions Division, for Dallas- The advent of e-commerce—and along with it, trends
based Symphony RetailAI, which provides artificial such as buy online, pick up in store (BOPIS) and buy
intelligence-enabled technology solutions for retailers online, return in store (BORIS)—has complicated the
and consumer packaged goods (CPG) manufacturers. inventory management process by increasing the num-
19_DGTL_balance.indd 20 6/29/19 4:02 PM

T HIS AR TI CL E O R I G I N A L L Y A PPE A RE D I N TH E A U G U S T 2 0 1 8 I S S U E O F DC VE L O C ITY
ber of channels retailers must manage. Organizations ing basic factors such as the type of business you’re in,
trying to get a better handle on the problem often the products you sell, and your physical location and
find themselves wondering where to begin: How do I assets. This allows companies to establish better pro-
make sure I have enough in-store inventory to meet cesses that will then allow the implementation of better
BOPIS demands? What is the best way to manage BORIS technology solutions. McLean points to BOPIS services
services? as an example. It’s much easier for a big box retailer to
The key is to tackle one issue at a time, says Nick set aside the space needed for such services than it is for
McLean, CEO of OrderDynamics, a provider of cloud- a smaller retailer located on the second floor of a mall,
based order management technology solutions based in he reasons. The big box likely has more inventory space
Richmond Hill, Ontario. to begin with, will find it easier to set aside space for
“It’s really about thinking through this in a phased pickup, and may even be able to add ship-from-store
approach,” says McLean. “That’s the primary advice we capabilities. A smaller retailer may not have the space
would have.” for such activities at all, finding it necessary to develop
Doing so means first taking a step back and consider- creative solutions to the problem—only offering such

The State of
Retail Supply
Chain 2019
services at certain outlets, for example, or reconfiguring Symphony RetailAI. McDonald adds that such systems
space to accommodate packing and shipping activities. make order management “simple, automated, and
Both entities must deal with staffing issues—in the dynamic,” allowing retailers to:
form of scheduling and compensation changes—as x View inventory availability across the supply chain
workers’ duties change. so they can select sources depending on factors that
“These are nuances people are [addressing] as they matter most—leadtime, freshness, lower cost, and so
think through omnichannel and the way they [manage forth.
inventory],” McLean says. “And there is no way you x Split multiple product order fulfillment across loca-
can implement these changes in one fell swoop.” tions based on availability.
Charles Dimov, vice president of marketing for x Use product returns in one channel for order ful-
OrderDynamics, adds that once those issues are fillment in another.
addressed, companies can begin “It’s so important to have a
to tackle the inventory visibility Developing a singular platform and process that sup-
piece of the equation. He points port one [view] of inventory and
to an OrderDynamics custom- view of inventory and all the challenges that go along
er that made key changes to its with it,” McDonald says. “[You
inventory strategy after putting improving flexibility across also need] something to manage
the building blocks in place to [retailers’] networks are the forecasting and fulfillment
accommodate combined online/ that needs to happen for all of
in-store services such as BORIS keys to managing today’s that inventory. You really need a
and BOPIS. Using a single inven- single platform that can simplify
tory platform, the retailer could increasingly complex all that.”
see all available inventory across supply channel. Salmasi agrees, emphasizing
its network and make in-store the difficulty brick-and-mortar
inventory visible to shoppers retailers face in today’s environ-
online, helping to drive them to its retail outlets to ment compared with their online-only competitors.
make their purchase, or to pick it up if purchased “The expectations that come with e-commerce now
online. The retailer eventually added a ship-from-store come with brick-and-mortar stores,” he explains.
service option as well. Together, these changes allowed “They now have to do what they do well and what the
the retailer to keep more inventory in the field, closer e-commerce giants do well. They have to manage both
to customers, and led to the elimination of one of its pieces.”
distribution centers. Such challenges require a more sophisticated
“This is a powerful tactic if used correctly,” says approach to managing inventory and to the technol-
Dimov, pointing to both the cost savings and improved ogies used to do so. Order management solutions that
customer service levels the project yielded. “There are incorporate analytics and allow the sharing of informa-
so many opportunities [available to you] when you tion between trading partners can provide the visibility
have a powerful system in place.” and agility required of today’s supply channel, technol-
ogy providers argue.
GET THE RIGHT TECHNOLOGY “There are a lot of demands on retailers and their
Technology providers point to distributed order man- suppliers for faster, better [service],” Salmasi explains.
agement (DOM) systems as tools that can provide the “Buy online, pick up in store, buy online and have it
level of visibility retailers and their suppliers need to delivered the next day—those services put tremendous
better manage inventory. These are order management pressure on the supply chain. Even something as simple
solutions that address a range of functions, including as free product returns can be complex.
inventory, order routing, analytics, and shipping. Such “In order to do it all well, [retailers] need more
systems can unify inventory management across all sophisticated technology solutions than they’ve had in
channels; manage order types and channels all in one the past. They need systems that work together.” c
place; provide real-time visibility of demand to manage
vendor, store, and customer orders; and prioritize tasks V I CTO R I A K I CKH A M I S S E N I O R E D I TO R AT
and optimize inventory performance, according to D C V E L O CI T Y .

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BY BR IAN GIBSON, C LIFF DEFE E , R A F A Y I S H F A Q , A N D B E TH D A V I S - S R A M E K
The State of
Retail Supply
Chain 2019
Urban
fulfillment:
The battle for
city shoppers
More and more people—
especially young people—are moving
into cities. To reach this increasingly
important market segment, retailers
need to find a profitable and efficient
way to do urban fulfillment.
T
here is no doubt that omnichannel retailing is omnichannel retailing. With limited household storage
having a significant impact on how retailers ful- capacity, parking for vehicles, or shopping time, newer
fill and deliver customer orders. With 2018 U.S. city dwellers are prime candidates for rapid omni-
e-commerce sales projected to eclipse US$526 billion, channel fulfillment. When these newer customers are
consumers are increasingly demanding that they be able coupled with long-time city residents who lack personal
to place orders through any channel they like and that transportation and shopping options, retailers have a
they be able to receive them when and where they want. significant demand growth opportunity.
At the same time that retailers are grappling with this Fulfilling small volume, high frequency, rapid-velocity
revolution, they are facing a key demographic change omnichannel orders in a highly congested urban setting,
that is significantly complicating order delivery and however, adds complications to the already challenging
fulfillment: the growth in urban population. Following task of suburban and rural omnichannel order fulfill-
decades of population migration to the suburbs, there ment. Rising real estate costs make it impractical to
is a shift back to urban areas. Between 2010 and 2015, establish high-capacity urban fulfillment centers that can
the core cities of the 33 largest metro areas in the United provide efficient access to a wide inventory assortment.
States added 1.52 educated millennials for each one Vehicle parking challenges and proposed restrictions on
added to their surrounding suburbs.1 delivery times in urban core areas can limit the ability
These urban markets provide fertile prospects for to support consistent, same-day delivery. And, serving
19_DGTL_urban.indd 24 6/29/19 6:58 PM

customers in high-rise offices and limited-access resi- new battleground” in an SRSC interview, a supply chain
dential buildings adds to delivery complexity, time, and executive indicated that flawless fulfillment and delivery
cost. So, despite the perceived potential, fulfilling urban will be essential for capturing and retaining urban mar-
omnichannel demand profitably poses quite a challenge. ket share.
The additional complications are not deterring omni- Winning the battle for city shoppers will not be easy.
channel retailers. Purveyors from Amazon to Walmart Retailers must establish networks with the capabilities to
are pursuing opportunities created by the intersection fill and deliver product to urban consumers with urgen-
of e-commerce and the revival of city living. In the cy and efficiency. To do so, they must be fully aware of
recently published “Eighth Annual State of Retail Supply the unique challenges that come with urban fulfillment
Chain (SRSC) Report,” nearly 60 percent of the research and the different alternatives available for fulfilling
participants said they are active in urban fulfillment. omnichannel demand. They must have a clear under-
Furthermore, that interest is increasing, with 80 percent standing of the advantages and disadvantages of each
of all respondents indicating that urban fulfillment is a of these different fulfillment models, and then select the
growth area for their company. Additionally, the SRSC combination of options that best fits their operational
report found that 78 percent of respondents believe that needs. Integrating current trends and findings from the
the value derived from the pursuit of urban fulfillment SRSC Report, we outline the challenges, requirements,
outweighs the costs. Stating “… urban logistics is the and emerging solutions that retailers face as they address

The State of
Retail Supply
Chain 2019
omnichannel for urban markets. (For more information The good news: Faster delivery can be more achievable
on the SRSC Report, see the sidebar on page 30.) in urban markets. Thanks to greater population density,
urban customers are generally closer to store inventory
URBAN FULFILLMENT CHALLENGES than suburban and rural customers are to a centralized
Urban fulfillment is not simple. Retailers in the SRSC distribution center (DC) or suburban store location.
survey identified five primary urban fulfillment challeng- High customer density in the urban setting also allows
es. (See Figure 1.) While final-mile cost, labor availabili- retailers to consolidate customer orders to achieve deliv-
ty, and volume growth are universal omnichannel chal- ery economies of scale and some relief from prohibitive
lenges for all locations, the challenges associated with last-mile delivery costs.
delivery speed and inventory placement are different for The not-so-good news: There are potential problems
urban fulfillment than they are for suburban or rural associated with every possible fulfilment method for
areas. That’s because these challenges are shaped by the omnichannel orders in an urban setting. If customers
area’s infrastructure. In urban areas, smaller store foot- choose to pick up at the store, customer parking may be
prints with limited storage space make inventory avail- extremely limited. If retailers are responsible for final-
ability more challenging, while minimal parking, heavy mile delivery, customers may all want their deliveries
traffic congestion, and growing restriction of delivery during the same time window and traffic congestion
vehicle size, stop times, and schedules make it hard to may impede timely delivery. Additionally, big orders
ensure fast delivery. These infrastructure concerns are and bulky products that require larger delivery vehicles
less of a factor for suburban and rural areas. can be especially troublesome in an urban setting where
Delivery speed. Although two-day delivery has become parking is limited.
the de facto standard for e-commerce, customers have Inventory availability. The growing expectation for
increased pressure on retailers to provide next-day and rapid delivery of omnichannel orders makes inventory
even same-day delivery for omnichannel orders. One proximity to the consumer a critical success factor. A
SRSC interviewee stated: “We have next-day shipping in supply chain executive explained: “Having inventory
play, and we are working toward same-day delivery capa- close to your customers is very critical for a short delivery
bility.” This pressure is especially intense from urban time.” Unlike rural and suburban areas, which can rely
customers because they tend to hold less “inventory” in on regional fulfillment centers and large stores, urban
their smaller living spaces. omnichannel fulfillment runs up against capacity con-
[FIGURE 1] URBAN FULFILLMENT CHALLENGES
Cost of final-mile delivery 39 48 13
Fulfillment & delivery labor availability 33 52 15
Managing order volume growth 28 50 22
Delivery speed required by customers 22 46 33
Availability of local inventory 21 36 43
0% 20% 40% 60% 80% 100%

Major Challenge Moderate Challenge Minimal Challenge
(Some numbers add up to more than 100 percent due to rounding.)
RESPONDENTS FROM 61 RETAILERS WERE ASKED TO RANK THE DIFFICULTY LEVEL OF A VARIETY OF POTENTIAL URBAN FUL-
FILLMENT CHALLENGES. HERE ARE THE TOP FIVE.

straints at every turn. There is limited storage capacity Among the SRSC Report participants, the store-based
for inventory in urban areas. Full-scale distribution fulfillment options are very popular, with a slight pref-
centers simply do not exist. To ensure availability and a erence for the deliver-from-store option. (See Figure 3.)
broad selection, retailers may fill orders from large distri- Fulfillment by retailer-operated regional distribution
bution centers outside of the urban area. This, however, centers is also very popular. Fulfillment from non-retail-
can increase delivery times. er distribution centers, however, is not as widely used.
In response, many retailers have chosen to fill orders Less than half of the retailers surveyed rely on vendors
from their urban stores. This allows for rapid deliv- for fulfillment, and only a quarter use logistics service
ery but creates a new set of challenges to conquer. providers’ facilities for urban fulfillment.
Forecasting demand for both in-store customers and Store-based fulfillment
online customers is more complex. Small store formats Viewed by many supply chain executives as logical
have little space for inventory storage and processing, extensions of the distribution network, city stores pro-
increasing the need for more frequent store replenish- vide the footprint needed for a quick launch of urban
ment to avoid stockouts and the likelihood of congestion fulfillment. Brick-and-mortar stores provide an existing
inside and outside the store. infrastructure that is close to urban customer delivery
points, and store inventory can serve demand that orig-
ESTABLISHED FULFILLMENT ALTERNATIVES inates from any channel. Additionally, the responses to
To offset these different issues, 89 percent of the SRSC the SRSC survey show that store fulfillment best enables
study participants use two or more fulfilment methods same-day delivery. (See Figure 4.) This is because store-
to serve city-based shoppers. Of those fulfillment meth- based fulfillment largely avoids the longer distances and
ods, there are two primary types in wide use: 1) fulfill- potential delays associated with delivery from regional
ment from stores, and 2) fulfillment from distribution distribution facilities.
centers. In-store fulfillment includes the options of click- These advantages foreshadow a growing role for stores
and-collect and deliver-from-store. For store fulfillment, in urban fulfillment, according to multiple SRSC inter-
orders are filled using in-store inventory and are either viewees. Along these lines, a discount retailer supply
picked up by customers or delivered to a customer-cho- chain executive revealed: “We think that over the next
sen location. Alternately, distribution center fulfillment three years, 80 to 85 percent of our e-commerce will be
leverages the staff expertise and operational capabilities fulfilled from our stores.” Store-based fulfillment is par-
of a facility operated by the retailer, product vendor, ticularly popular among grocery, pharmacy, and apparel
or logistics service provider. Orders are processed and retailers.
shipped directly to the customer-chosen location. Each Store-based fulfillment is not without challenges, how-
urban fulfillment method offers distinct retailer benefits ever. A key concern is inventory management, as retail-
and challenges. (See Figure 2.) ers are now relying on a single inventory pool to support
[FIGURE 2] COMPARISON OF URBAN OMNICHANNEL FULFILLMENT METHODS
Fulfillment Method Advantages/Benefits Disadvantages/Challenges

Store – Click & Collect Proximity to customers Competition for on-shelf inventory
Access to in-market inventory Aisle congestion in stores
Final-mile delivery by customer Peak periods for customer pickups
Store – Fill & Deliver Fewer stores involved in fulfillment Home delivery expense incurred
Customer convenience Minimal staff expertise in pack & ship
Off-hours fulfillment possible Customer delivery planning & execution
Retailer DC Greater control over order fulfillment Lower proximity to customers
Inventory pooling effect Limited same-day service opportunities
Reduced interference with store operations Cost of picking & packing “eaches”
Vendor or 3PL DC Reduced infrastructure investment Reduced control of fulfillment process
Variable cost of operations Very difficult to provide same-day service
Logical solution for bulky goods Low prioritization of individual orders

The State of
Retail Supply
Chain 2019
both store and e-commerce demand. One executive schedules to speed the receiving process and the release
commented: “You need the right balance of inventory to of delivery vehicles. Replacing pallet or floor-load deliv-
support both the omnichannel experience and the in-store eries with roll-on/roll-off cart deliveries also helps speed
experience. It takes different thinking about demand fore- up the replenishment process by allowing the store team
casting than the way we’ve viewed it in the past.” That to move product directly from delivery vehicles to store
is, retailers must engage in a more complex level of aisles.
demand planning to determine inventory allocation. On Physical infrastructure limitations can also affect
top of their store-level forecasting for walk-in customer retailers’ ability to offer a wide array of stock-keeping
demand, retailers must accurately predict e-commerce units (SKUs) and efficiently process orders in urban
demand by each urban fulfillment methods and then by stores. To address the SKU challenge, some retailers limit
fulfillment location within each method. the online product assortment available for immediate
Furthermore, urban stores have limited space for safe- urban fulfillment to high-velocity SKUs. Slower moving
ty stock, and as a result, stockout risks accelerate when items must be fulfilled from regional DCs. Others use a
a demand spike occurs. To address this issue, many hub-and-spoke system, where online orders are routed
companies have increased their store-order and delivery to hub stores with adequate SKUs and labor to com-
frequency to enhance product availability and order fill plete orders within a short time window. One executive
rates. For example, some retailers are switching from explained: “We leverage our store network for capacity
a weekly single-store truckload delivery to multi-stop needs and product availability by spreading the volume.”
routes (also known as “milk runs”) that replenish stores Another challenge to both the click-and-collect meth-
two times or more per week. This also allows the retail- od and the fill-and-deliver method is the negative impact
ers to replenish store inventory with individual units or they can have on the in-store shopper experience. The
prepacks rather than full cases to better match demand increase in the number of delivery trucks required for
and manage space constraints. more frequent store replenishment can create traffic con-
However, greater replenishment frequency can cause gestion and take away limited parking from in-store cus-
its own challenges, including creating traffic congestion, tomers. Using in-store inventory for e-commerce orders
appropriating limited parking, and disrupting store may reduce on-shelf product availability. Additionally,
shoppers. To minimize these issues, retailers are syn- the increase in store replenishment and picking for mul-
chronizing store associate schedules with truck receiving tiple e-commerce orders during normal business hours
[FIGURE 3] URBAN FULFILLMENT METHODS CURRENTLY USED
Fulfill from store* 86
Fulfill from retailer regional DC* 83
Click-and-collect at store 77
Fulfill from vendor DC* 44
Fulfill from 3PL DC* 26
0 10 20 30 40 50 60 70 80 90 100
Percentage of surveyed retailers

*Delivery to customer provided
THIS CHART SHOWS THE PERCENTAGE OF SURVEYED RETAILERS USING THE FOLLOWING METHODS TO FULFILL URBAN
OMNICHANNEL ORDERS. PARTICIPANTS COULD CHOOSE MORE THAN ONE.

creates aisle congestion. It also diverts store employees fill-and-deliver option to work, retailers must pay atten-
from their normal customer service roles. tion to service reliability. Delivery personnel availability
One solution is to receive truck deliveries and fill cus- and quality can be inconsistent, especially when a retailer
tomer orders during off-peak or nonoperating hours, uses on-demand fulfillment services such as Shipt or
but that tactic can impede the rapid delivery demands of Instacart. As the volume of orders in urban markets
urban shoppers. Additionally, to fulfill orders with min- increases, retailers may face another challenge: urban
imal customer disruption in the confined space of small fulfillment capacity. One SRSC executive raised the
format urban stores, retailers must be creative. The pick- question, “What happens when online order volume at
ing processes, packing stations, and staging areas used urban locations starts becoming more than 10 to 15 percent
in distribution centers and large suburban stores cannot of the store volume?”
simply be replicated. Instead, streamlined methods using Cost is another consideration. A vice president noted:
scaled-down equipment and fewer shipping box sizes “We’re dipping our toe in the water in a lot of different
must be deployed. areas with delivery because—given the costs associated with
In addition to the general advantages and disadvantag- last mile—there’s still a lot to be learned.”
es associated with all store fulfillment models, it’s helpful Finally, the use of stores for order fulfillment places
for retailers to understand the unique advantages and additional responsibility on store associates. Fulfillment
disadvantages associated with the two different store ful- of individual orders requires an efficient pick/pack
fillment models—click-and-collect and fill-and-deliver. operation that maintains strong productivity, speed, and
Click-and-collect: The click-and-collect option is par- accuracy. Small details such as improper selection of
ticularly efficient, eliminating costly last-mile operations carton size or delivery provider can result in dimensional
and requiring no more than curbside loading. Likewise, weight delivery costs. Retailers must properly cross-train
retailers avoid the risks of in-transit damage, mis-deliv- their customer service associates to execute the fulfill-
eries, and porch piracy. But as click-and-collect orders ment functions of order picking, packing, and shipping.
increase, retailers risk clogging up their customer service Distribution center fulfillment
desks or checkout locations handling online orders and While stores offer a compelling urban fulfillment value
negatively affecting the in-store customer experience. proposition, distribution centers also play a vital role.
Fill-and-deliver: The fill-and-deliver option pro- In addition to rapidly replenishing the stores, suitably
vides greater customer convenience. However, for the located distribution centers can handle e-commerce
[FIGURE 4] FASTEST CUSTOMER FULFILLMENT SPEED BY METHOD
76%
Click-and-collect at store
16%
56%
Fulfill from store*
33%
27%
Fulfill from retailer regional DC*
46%
0%
Fulfill from vendor DC*
61%
0%
Fulfill from 3PL DC*
43%
*Includes customer delivery time 0% 10% 20% 30% 40% 50% 60% 70% 80%
Percentage of retailers that are using that delivery method
Same day Next day
OF RETAILERS THAT ARE USING EACH OF THE DELIVERY METHODS, WHAT PERCENT ARE ABLE TO OFFER SAME-DAY OR
NEXT-DAY SERVICE?

The State of
Retail Supply
Chain 2019
order fulfillment and delivery for urban markets. Retailers UNDERSTANDING RETAIL SUPPLY
can use their own distribution centers or, depending on
the order cube, weight, and quantity, their product ven-
CHAIN TRENDS
dor’s or logistics service provider’s DCs. Auburn University’s Center for Supply Chain
Compared to stores, distribution centers can better Innovation, in conjunction with Supply Chain
support the fulfillment of large-scale orders. This is Quarterly’s sister publication, DC Velocity magazine,
especially true for home improvement, electronics, and and the Retail Industry Leaders Association, conducts
furniture retailers that sell products of widely varying an annual study of retail supply chain trends. The
weights, dimensions, and prices. DCs also have access to “2018 State of the Retail Supply Chain Report” inves-
trained transportation personnel and specialized product tigates the strategies, investments, and best-in-class
handling equipment—resources needed to achieve safe capabilities that drive success in the hyper-speed
and effective delivery of large appliances, bulk building omnichannel retail environment. Each year, the SRSC
materials, and furniture. research team conducts in-depth interviews and an
Distribution centers also allow for inventory pooling, online survey with top retail supply chain executives.
which provides greater product availability and cost con- This year’s participants represent 61 North American
trol. Rather than dispersing product to multiple locations retailers with collective annual sales of more than
for fulfillment, it is held in a more central location until $1.2 trillion. The report can be downloaded from
demand is known, and then fulfillment and direct deliv- the Center’s website: http://auburnsupplychain.org/
ery takes place. The need to prepare and transfer product expertise.
to stores is eliminated, which reduces the landed cost of
goods, according to advocates of this method.
Distribution center fulfillment is by no means perfect. managerial resources to engage reliable service providers
Many distribution centers are not configured for picking and monitor delivery processes. A lack of vigilance creates
and packing eaches for individual orders, which negatively service failure risks.
impacts fulfillment cost and productivity. Longer distanc-
es to delivery points impede rapid transit times. For this EMERGING SOLUTIONS
reason, only 27 percent of the SRSC participants who rely In addition to these more established solutions, retailers
on their own distribution centers for urban fulfillment are on a continuous quest for innovative omnichannel
offer same-day delivery to customers, while none of them fulfillment solutions. Three emerging options are “dark
receives same-day service from logistics service providers store” fulfillment, multi-tenant facilities, and pop-up
or product vendor facilities. Additionally, urban fulfill- fulfillment centers. Each solution holds promise for
ment may not be the top priority for distribution centers, retailers.
decreasing, as a result, the service quality provided to Dark stores: More popular in Europe than in the
urban shoppers. United States, dark stores are retail outlets with no
In addition to their own distribution centers, some walk-in customer traffic. They execute fulfillment of
retailers also use an external partner’s distribution facili- e-commerce orders and sometimes provide emergency
ties to handle urban omnichannel fulfillment. This option inventory replenishment for local stores. The dark store
does decrease the amount of investment that retailers will layout is similar to a traditional grocery store or drug-
have to make in their own distribution operations as well store, complete with fresh, frozen, and dry food; personal
as the associated variable costs. For example, it may make care products; and household goods. However, you will
sense to use a logistics service provider for specialized not see price tags, endcap displays, or checkout lanes.
“white-glove” delivery services with product installation Order pickers use multi-bin carts and a tablet computer
and packaging disposal. to navigate the dark store while efficiently filling customer
However, relying on logistics service providers for orders. Completed orders are packed for final delivery to
customer fulfillment causes retailers to lose significant customers’ homes, lockers, or offices.
control of the process. This is an ongoing concern. One On the plus side, dark stores are highly conducive to
executive lamented, “Your order-delivery partner has your rapid order fulfillment as there are no regular customers
reputation in its hands. So, if we have problems with that creating aisle congestion. There is also less likelihood of
company, customers aren’t pointing at that delivery driver, inventory stockouts as there is no competition for prod-
they’re pointing at us.” As a result, retailers must dedicate uct from walk-in customers. And, existing facilities can

be repurposed rather than completely shuttered. The U.S. properly with the retailer’s order profiles, infrastructure
warehouse club store Sam’s Club is doing this with some capabilities, and demand patterns. To create this align-
of its stores, for example. ment, retailers must first consider product characteristics,
The main challenges of dark stores include the real typical order size, and service requirements. Next, they
estate investment and ongoing operating costs. Retailers must factor in the capacity, current activities, and location
need consistent order volume to ensure that the facility of current and potential facilities. The decision should
can be profitable. also consider anticipated volume and the distribution of
Multi-tenant fulfillment: These fulfillment centers allow e-commerce orders.
retailers to access capacity in urban markets that have Finally, retailers must take into consideration cost.
limited industrial vacancy rates. As one supply chain executive
These shared e-commerce facil- Winning the battle for city noted, “The urban fulfillment
ities, run by specialized logistics landscape is fraught with peril …
service providers, offer space shoppers will not be easy. financial peril.” Retailers must
flexibility, market proximity, and evaluate the value proposition
variable cost of operations for Retailers must establish of their urban-fulfillment offer-
retailers. A future opportunity is networks with the capabilities ings against the requisite resource
to create shared inventory pools needs and associated expenses.
to support the fulfillment needs to fill and deliver product to Compared to other online shop-
of multiple retail tenants. pers, urban customers are more
This strategy is garnering real urban consumers with willing to pay for delivery of
estate developer investment. urgency and efficiency. their online orders. This certainly
One example is a soon-to-open helps to monetize urban fulfill-
two-story, 840,000-square-foot ment services, but it also raises
fulfillment center in New York City’s Bronx neighbor- the bar on customer expectations of service.
hood. It will have two levels of loading and unloading In the end, speed and convenience will be critical to
docks and the ability to serve multiple retailers. The facil- winning over urban e-shoppers. Right now, retailers are
ity will provide rapid urban fulfillment capabilities with relying on their existing supply chain footprint through
access to 20 million people in metropolitan New York. store fulfillment and distribution centers. However, as
With no retail tenants currently under contract, it remains urban demand continues to ramp up, successful retailers
to be seen if this strategy will gain traction. will be the ones that can build and develop new urban ful-
Pop-ups: Pop-up fulfillment centers are a short-term fillment capabilities to meet customer requirements—and
approach to urban fulfillment. These temporary oper- do it profitably. c
ations are generally located in empty malls or unused
warehouses and are used to help retailers maintain service Note:
quality during peak and holiday seasons. When the pop- 1. Pete Saunders, “Where Educated Millennials are
up facility is effectively planned and staffed, it can alleviate Moving,” Forbes (January 12, 2017)
the strain placed on primary urban fulfillment operations
when order volumes spike. To succeed, pop-up fulfillment B RI A N G I B S O N ( B R I A N . G I B S O N @ A U B U RN .E DU) IS T HE
centers require: proximity to customers to support next- WI L S O N F A M I L Y P R O F E S S O R A T A U B U RN UN IVE RS IT Y’S
day delivery options, availability of a flexible and scalable RA Y M O N D J . H A R B E RT CO L L E G E O F B U S I N E S S . HE
workforce to handle demand spikes, and connectivity to I S A L S O E XE CU TI V E D I R E CTO R O F TH E CE N T E R F O R
the retailer’s warehouse management system. Retailers S U P P L Y CH A I N I N N O V A TI O N . CL I F F D E F E E (C L IF F .
like Walmart and Urban Outfitters have used pop-ups to D E F E E @ A U B U R N . E D U ) I S TH E E B S CO A S S O C IAT E
fulfill urban orders for their top 1,000 SKUs. PRO F E S S O R O F S U PPL Y CH A I N M A N A G E ME N T ;
RA F A Y I S H F A Q ( RI S H F A Q @ A U B U RN . E D U ) IS T HE W .
STEPS TO SUCCESS A L L E N R E E D A S S O CI A TE P R O F E S S O R O F S UPPL Y
To succeed in omnichannel urban fulfillment, retailers CH A I N M A N A G E M E N T; A N D B E TH D A V I S - S RAME K
must deploy the right combination of resources and ( B E TH . D A V I S @ A U B U RN . E D U ) I S TH E G A Y L E PARKS
processes. One of the primary drivers of success is estab- F O R E H A N D A S S O CI A TE PRO F E S S O R O F S UPPL Y C HAIN
lishing fulfillment facility types and locations that align M A N A G E M E N T.

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The State of
Retail Supply
Chain 2019
The evolving
retail store
Retailers adapt in-store fulfillment processes to meet
customer demand for convenience and faster delivery.
M
eeting consumer needs in today’s retail envi- reshaping the retail store from a people, process, and
ronment is becoming increasingly challeng- technology point of view, with an emphasis on the
ing, especially for organizations rooted in latter aspect.
brick-and-mortar operations. As they struggle to “Technology is a huge piece of this,” Bomber says,
address changing consumer shopping preferences— emphasizing the need to prepare in-store associates to
driven in large part by the “Amazon effect”—many meet changing demands. “It comes down to empow-
are finding that they must rethink in-store operations ering the associate and putting technology into the
in order to provide a seamless experience for shop- associate’s hands.”
pers, whether those shoppers choose to buy online,
shop in the store, or some combination of the two. START WITH A PLAN
“There is this expectation for immediate grati- There are some prerequisites when it comes to
fication, and Amazon is pioneering ways to deliv- improving the retail fulfillment process, and most
er it. Meanwhile, retailers are re-evaluating how have to do with inventory planning and management.
they can respond to this need as well,” says Karen Rod Daugherty, vice president of product strategy for
Bomber, director of retail industry marketing for Fort Atlanta-based cloud supply chain planning solutions
Mill, S.C.-based Honeywell Safety and Productivity provider Blue Ridge Global, explains that companies
Solutions, which provides hardware and software must first have a good e-commerce platform in place,
solutions for retailers. “Consumers don’t care if they along with solid strategies for planning and managing
got the product online [or] at a store; they just want their inventory investment across all channels. This
a single, unified shopping experience. Retailers are means that their e-commerce channel doesn’t oper-
trying to manage through this expectation.” ate in a vacuum and that they have or are working
One of the biggest challenges retailers must man- toward a single, unified view of inventory that allows
age is the changing work requirements of in-store them to position products where they are most likely
associates. No longer there solely to meet the needs to be needed. The latter requires optimizing in-store
of traditional walk-in traffic, associates must now inventory for both “click and collect” (in which buy-
accommodate online shoppers who are picking up ers purchase products online and pick them up in
or returning items in the store as well as prepare the retail store) and ship-from-store fulfillment. A
“ship from store” e-commerce orders—entirely dif- single view of inventory also helps promote accuracy,
ferent tasks than they’ve had to perform in the past. which is key to improving fulfillment and providing
Supply chain service providers say such changes are the best possible customer service, Daugherty and
19_DGTL_retail.indd 34 6/29/19 4:10 PM

T HIS AR T IC L E O R I G I N A L L Y A PPE A RE D I N TH E S E PTE M B E R 2 0 1 8 I S S U E O F DC VE L O C ITY
others agree. can be used to create operational efficiencies as well

“As obvious as this may sound, the first thing as improve customer-engaging activities. Bomber
retailers must have is inventory accuracy at the store points to handheld mobile devices, which are increas-
level. If you don’t know how much you have on hand ingly finding their way into the store, as one exam-
… then your B2C [business-to-consumer] e-com- ple. Such devices put information at an associate’s
merce fulfillment from the store isn’t going to work,” fingertips, allowing them to move through the store
Daugherty explains. “I know that sounds terribly with an automated system for filling orders. The
obvious, but I still run into retail companies in some devices can include scanners, RFID (radio-frequency
verticals that aren’t very good at that. identification) readers, printers, and rugged mobile
“I would say that’s the first thing,” Daugherty adds. handheld computers designed to fit a wide variety of
“That’s table stakes.” retail environments. Honeywell offers a “connected
retail” solution that combines a handheld computer
ADD TECHNOLOGY, SERVICES with voice-directed technology (in the form of a wire-
Technology is the next piece of the puzzle, and it less headset) and software that connects to a retailer’s

The State of
Retail Supply
Chain 2019
inventory management system for this very purpose. of purchase online and the consumer’s receiving it,”
Such systems also allow in-store associates to receive says DeJianne, emphasizing the need for a custom-
information and react in real time, improving the ized approach to adapting retail fulfillment services.
replenishment process as well. “Every retailer has to look at what it needs to accom-
In a similar way, mobile technologies are being used plish in terms of that customer experience and then
for point-of-sale (POS) transactions, helping improve design [its processes] according to those needs.”
the in-store experience for both online and in-store
shoppers, Bomber adds. Although most retail stores FOCUS ON TRAINING
still use traditional point-of-sale terminals, many Bomber, Daugherty, and DeJianne agree that employ-
are beginning to complement that approach with ee training is a crucial part of the mix no matter
mobile POS technology to speed up the checkout what approach retailers take to respond to chang-
process for both click-and-collect and walk-in traf- ing fulfillment demands. Training employees on
fic. Mobile POS technology how to use new technology is
includes handheld tablets and one thing, but they also need
smaller devices used for pay- to learn how to perform distri-
ment—think of the last time bution center-like functions if
you purchased something at they are to successfully inte-
an Apple store—as well as grate the online and physical
more rugged industrial hand- store experience, Daugherty
held devices you may see in a says. Store associates must
big box retail outlet. learn how to pick, stage, and
Although convenience and ship orders as well as gain an
efficiency are driving many understanding of the logis-
of these changes, experts also tics process. This becomes
point to underlying demand increasingly challenging in an
for faster delivery service as a environment staffed by part-
key component of the evolv- time workers and temporary
ing retail store. Waiting for or seasonal help.
home delivery can take too “That’s a big challenge that
long for some customers, who retailers face,” he says, adding
will prefer more immediate that they must “put discipline
click-and-collect options, for into the training process and
instance. There is also growing demand for “access into filling those e-commerce orders.”
point” pickup, according to Louis DeJianne, director DeJianne agrees, emphasizing the need for a more
of retail marketing for Atlanta-based global transpor- disciplined approach to hiring as well. This becomes
tation and logistics giant UPS. Through UPS’s Access especially important in a strong economy, as business
Point Network, customers can buy online and pick picks up across many industries, as well as when staff-
up at a conveniently located access point when home ing up to meet seasonal demand. He says he is already
delivery won’t work or there is no retail outlet nearby seeing retailers invest in this aspect of their business se
(provided the retailer has included UPS Access Point today.
locations in its shipping options). UPS’s network “Retailers are starting to hire people much earlier
includes nearly 9,000 locations in the U.S. and more in the process and bring them on board so that they
than 27,000 globally for both business and consumer are comfortable,” he says. “[Increased] volume and
use—the latter driven by changing consumer pur- growth requires retailers to ramp up their personnel
chasing habits. Access points include independently and ensure new technology works properly. Staffing
owned and operated neighborhood businesses, UPS has become a very important piece of the brick-and-
Store locations, and self-service lockers. mortar retailer’s day.” c
“What we’re seeing is retailers looking for any
number of opportunities to improve the customer V I CTO RI A KI CK H A M I S S E N I O R E D I TO R AT
experience and shorten the period between the time D C V E L O CI T Y .

sealedair.com/sfs

BY GU R R AM GOP AL AND ALBE R T M A CA RRO N F A B R E G A T
The State of
Retail Supply
Chain 2019
Delivering on
“direct to consumer”
in the CPG industry
I
Selling direct to the n recent years, the consumer product goods (CPG) industry has
struggled to sustain growth amid flat sales.1 The reasons are many: the
consumer poses an attractive strengthening of powerful retailers, the growth of e-commerce chan-
option for consumer product nels, and the change in consumers’ needs and priorities. In response,
large CPG manufacturers have focused on cost-cutting and trimming
goods (CPG) companies brands while seeking new avenues for growth.2 One avenue that holds
promise for some CPG manufacturers is direct-to-consumer (DTC)
looking to grow sales. But do strategies in which the manufacturers sell their products directly to con-
the benefits outweigh the sumers using e-commerce, without going through intermediaries like
wholesalers or retailers, physical or online.
risks and challenges? Indeed, new CPG players like Harry’s, Dollar Shave Club, and The
Honest Company have started to challenge the oligopoly of “legacy”
CPG manufacturers. These new players differ from
traditional manufacturers in that they are capable
of developing the supply chain and creating a
sustainable value for consumers with less
time and money than established mar-
keters by focusing intensely on spe-
cific categories—shaving prod-
ucts in the case of Harry’s and
Dollar Shave Club and nontoxic
household products in the case of
The Honest Company. These new
entrants are selling their products
19_DGTL_direct.indd 38 6/29/19 4:11 PM

direct to consumer and using, in the majority of cases, only in which they have invested billions of dollars if retailers
e-commerce. retaliate and promote more of their private-label offerings.
Traditional CPG companies, however, have been more Cannibalization of CPG retail sales is another major issue
cautious about taking the plunge into the DTC market. when going DTC, as this channel will not just attract new
A 2013 Deloitte survey found that although 92 percent of customers but could also lure some retail customers from
CPG executives agreed that e-commerce is a strategic chan- brick-and-mortar stores. Companies have to focus on gains
nel for their companies, only 43 percent thought that their in total revenues rather than on just DTC revenues. DTC
companies were well prepared for a digital strategy imple- margins, in the initial stages, are often lower than the tra-
mentation.3 Moreover, a 2018 Boston Consulting Group ditional margins from selling to wholesale or retail, which
report showed that only 34 percent of the most important further diminishes the interest a “legacy” manufacturer
CPG companies were “extra prepared” for DTC.4 Such may have in going DTC.
companies have either a dedicated e-commerce supply Going DTC also requires a massive cultural shift and a
chain management team or a cross-functional e-commerce significant investment. CPG companies will have to move
team which includes supply chain representatives. away from having a distribution network designed for bulk
But some legacy companies are beginning to catch up. shipments to stores, to one that also includes small-quanti-
As new players continue to cut into and threaten CPG ty shipments to individuals. In a world with free same-day
giants’ income, these giants are engaging in new strategies or two-day shipping (thanks to Amazon), such a network
to protect their position. One example is the US$1 billion redesign is not only challenging to implement but also cost-
acquisition of Dollar Shave Club by Unilever. In the future, ly. Additionally, customers’ expectations when purchasing
we can expect an increasing number of DTC attempts by from the manufacturer’s own website are higher than
legacy and new CPG players. Before they dive in, however, when consumers buy from retailers’ websites with a variety
CPG companies need to understand both the challenges of brands. Since the brand’s website only offers its own
and benefits of going direct to consumer and be thoughtful products, consumers expect to find every variant (color,
about what they offer online and how they develop their size, and style) at a cheaper price. They also expect manu-
supply chain for this channel. facturers’ websites to provide accurate and comprehensive
information regarding the product, superior imagery, and
DO DTC BENEFITS OUTWEIGH THE RISKS? excellent service.
In spite of the allure of going direct to consumer, large In many cases, the benefits of a DTC channel may out-
consumer goods producers are still reluctant to take that weigh the risks. Consumers expect to be able to purchase a
leap. According to Nielsen, the top 26 CPG food and bev-
erage companies accounted for a mere 3 percent of overall
category growth during 2012-2015, even though they held
45 percent of the total market share.5 Smaller companies
are driving much of the growth in the CPG categories, as
giants, such as Mondelez, Unilever, and Kraft Heinz, see
risks in adopting an aggressive DTC approach. The e-com-
merce market is still relatively small, and going direct to
consumer could damage a company’s relationship with
retailers, potentially reducing the manufacturer’s primary
income source, traditional retail sales. Companies are also
worried about losing the highly prized premium shelf-space

The State of
Retail Supply
Chain 2019
company’s products on its website. According to the “2017 presence of fakes on the site negatively affected its image.7
Digital Consumer Preferences Survey” from BrandShop, Interestingly some retail partners also want CPG compa-
90 percent of consumers visit a brand’s website to shop, 82 nies to go DTC even though it might lead to a reduction of
percent expect to be able to make a purchase directly from retail product sales. Fast delivery is a feature that consumers
the brand, and 87 percent would buy products directly are increasingly demanding as they shift to e-commerce,
from a brand online if given the option.6 Consumers are and retailers are considering turning their stores into
also seeking easier ways to purchase CPG goods, such as micro-warehouses from which they could ship a manu-
through monthly deliveries to their homes. facturer’s DTC orders. In this system, the retailer acts as a
Additionally, having a DTC channel through its website warehouse and delivery site rather than as a sales channel.8
allows a CPG manufacturer to achieve a better understand- Indeed, manufacturers do not have to decide between
ing of consumer behaviors and preferences—something a DTC channel and the traditional wholesale channel.
that can be hard to gain selling through a retailer. DTC Focusing on both channels allows a firm to pursue the
forces a company to handle every step of a transaction, thus growth presented by e-commerce while fostering rela-
owning the complete customer experience and allowing it tionships with the main income source, retail stores.
to collect unbiased insights while creating greater opportu- Additionally, an omnichannel approach offers synergies
nities for customer engagement. and access to potential clients loyal to one retailer only.
DTC also allows brands to retain control of their brand Amazon, for example, has over 132 million active custom-
image while selling online. Some brands have had trouble ers, and manufacturers could use such e-tailers to lift brand
with copies of their products being sold on Amazon and sales and return on investment. This cannot be ignored in
other online retail sites. Birkenstock, a footwear maker, blind pursuit of a DTC channel.
stopped selling its products on Amazon in 2016 because the
NEW BRANDS FOR DTC?
Once manufacturers decide to go DTC, they
[FIGURE 1] PRIMARY E-COMMERCE ENABLERS need to figure out how they want to build their
brand image in the DTC space. Do they extend
existing brands, or do they create new ones?
Free Offering an existing brand online could cause
home
delivery too much conflict with channel partners, and
potential consumers might perceive a cheapen-
Display Lower
prices ing of the “brand” when it is available online. If
of product
pricing and than at the manufacturer decides to build a new brand,
availability traditional it needs to plan out how it wants its product
stores
to be perceived. Should it be price-based,
convenience-based, or category-focused? As it
develops the new product and its brand iden-
tity, a manufacturer should also be aware of
Enablers the factors that encourage consumers to buy
Online
exclusive/ Free online and the factors that discourage online
new in-store buying. Figures 1 and 2 show the most import-
products pickup
ant enablers and obstacles that manufacturers
must consider before creating a new offering
that is sold online only. A product that offers a
combination of enabling factors, while avoid-
Online ing the obstacles, will be seen as providing
Promotions reviews value to the consumer.
and ratings Manufacturers can pursue several value-add-
ing propositions to persuade consumers to buy
their products DTC as shown in Figure 3. In
THESE ARE SOME OF THE FACTORS THAT WOULD ENCOURAGE addition to saving time or money, manufac-
CONSUMERS TO BUY ONLINE. turers can present a unique product with new

characteristics or technology. They can also
create an enjoyable and surprising experience [FIGURE 2] PRIMARY E-COMMERCE OBSTACLES
so that their customers can get to know their
products and help develop a strong brand
image. Manufacturers can also offer products Shipping
customized to a buyer’s specific preferences, charges
which may be hard to do via a retailer’s shelf. High

Never minimum
buying certain order
SUPPLY CHAIN CHALLENGES product amount
When a manufacturer decides to sell DTC, categories for free
online shipping
it requires significant changes in the supply
chain, extending from how a final product is
designed and manufactured to how it is deliv-
ered to the end-consumer.
Product design and manufacturing: Obstacles
Designers encounter a great dilemma when it Not believing
Quality saving money
comes to thinking about the optimal solution concerns purchasing
for DTC products: They must balance variables online
such as physical handling, ease of transport,
stability, and product digitization (how the
product is represented online) with creating a
product that appeals to the consumer. Liking
Companies must acknowledge that there are Non-user- shopping
friendly in retail
some products in which the physical “touch websites stores
and feel” experience is a significant element of
the shopping process. When designing DTC
products, designers have to compensate for the
lack of that physical experience by developing, THESE ARE SOME OF THE FACTORS THAT WOULD DISCOURAGE
in collaboration with marketing, IT, and other CONSUMERS FROM MAKING AN ONLINE PURCHASE.
functions, a product that is visually appealing
and can also be experienced virtually. Virtual
reality apps and videos of the product, for example, can slow-moving stock-keeping units (SKUs). Slow-moving
help provide a virtual experience of physically handling the SKUs can benefit from production outsourcing, as the
product. supply chain can be designed for efficiency. Third-party
While shipment costs are a significant part of e-com- manufacturers can handle low demand more efficiently
merce total costs, a transportation-efficient design and because they can lower material and manufacturing costs
packaging will not work if consumers don’t find it appeal- by spreading them over products from multiple custom-
ing. Companies need to find the optimal balance between ers. Outsourcing production allows CPG companies to
cost and space-efficient packaging (that both protects the focus their efforts on marketing and sales. As DTC sales
package while being handled and minimizes transportation build up, the supply chain needs to become more resilient
costs) and package attractiveness. DTC product packag- and responsive, and companies can bring manufacturing
ing needs to be lightweight, leak-proof, temperature-sta- in-house. Razor blade manufacturer Harry’s first started
ble, damage-proof, and rectangular-fit. Ben & Jerry’s has outsourcing its blade production to a German factory, but
proved that even temperature-controlled products like ice once it had a big enough client base, it proceeded to pur-
cream can be sold online and shipped directly to the con- chase the factory so that it could control the production.9
sumer. As consumers are becoming more environmentally One danger of outsourcing is that the third-party manufac-
conscious, they are demanding eco-friendlier packaging, turer might decide to enter the DTC market with its own
which also needs to be taken into account. product, as Dollar Shave Club found out when its contract
When it comes to manufacturing direct-to-consumer manufacturer, Dorco, started selling a similar product.
products, there is a distinction between fast-moving and Finally, the customization and personalization that is

The State of
Retail Supply
Chain 2019
enabled by the DTC channel creates additional challenges players (such as Uber and Lyft) and options (click-and-
for manufacturers. The DTC channel allows for a large collect, time-slot delivery, lockers, and others) proliferate.
number of product variations, but this adds complexity As technology improves, even seemingly bizarre delivery
and cost from a manufacturing point of view. There is a big ideas can become feasible, like drone-based deliveries. CPG
difference between profitable diversity and money-burn- players will need to carefully review and pilot the various
ing complexity. One way to mitigate the negative effects options before choosing the one(s) that minimizes costs
of SKU proliferation is through standardization of the while also fulfilling customers’ requirements. Additionally,
costliest components. Another approach involves product CPG companies going DTC have to worry not only about
postponement, or shipping almost-ready products in bulk product deliveries but also about how to handle returns and
to a mini-warehouse or a retailer store and customizing reverse logistics.
them closer to the demand, just before last-mile deliveries. First, manufacturers must establish the minimum price
Postponement is particularly effective if the customization point that makes home delivery of individual SKUs eco-
is related to quantities or product mix; that is, if the DTC nomically feasible. Amazon and Walmart, for example,
order can include customer-specified quantities (rather offer free delivery for orders over US$35 or when a certain
than manufacturer-determined) and a customer-specified number of products are subscribed. As companies set
mix of products (specific quantities and mix of toothpaste, a price point, they will need to consider factors such as
toothbrushes, and dental floss, for example). product weight, temperature control, fuel price, delivery
Logistics: Delivering the ordered product into the hands options, and demand. Given the unpredictable nature of
of the consumer is an expensive, tricky part of DTC that some variables (such as fuel, distributor availability, and
CPG companies are still struggling to master. As retailers regulations), companies should recognize that there are
such as Amazon and Walmart offer free one- or two-day certain products that might not qualify for free shipping by
delivery for premium members or for qualifying purchases, themselves but can be shipped free as part of a larger DTC
the need for speed and flexibility in the DTC channel has subscription.
increased, adding complexity to the logistics network. CPG In many cases, a DTC channel may require CPG com-
companies will need to consider transportation partners panies to completely redesign their distribution network.
and delivery points that they have not worked with before. As companies try to make pickup and home delivery more
Delivery options increase every day as new transportation affordable, they are desperately seeking economies of scale,
[FIGURE 3] VALUE-ADDING PROPOSITIONS FOR DTC PRODUCTS
Offer
customized
products
Present a Create an
unique product, enjoyable and
not available surprising
before experience
Offer a
time-saving
solution
Offer a
money-saving
solution

which would help lower costs. One option is to have smaller managers to enable this service. According to Ecommerce
distribution and fulfillment centers in many large metro- News, in 2017 more than 40 percent of consumers from
politan areas. Based on the 2017 Census data from the U.S. France, Germany, the United Kingdom, and Sweden used
Census Bureau, if CPG DTC players had distribution and click and collect in the past 12 months.11 Now U.S. con-
fulfillment centers in the top 36 most populated metropol- sumers are beginning to use the click-and-collect model. An
itan areas, they would be able to reach and offer feasible additional benefit for the retailer is that consumers coming
pickup and home delivery options to over half of the U.S. to pick up their orders in the store might make additional
population. But this would require a major network rede- store purchases while they are there. Big retailers are already
sign, as many CPG distribution networks currently rely investing in facilities to allow for this category’s growth.
on a few, large, centralized or regional DCs to deliver to Amazon’s recent US$13.7 billion purchase of Whole Foods
retailer DCs. Having a large number of distribution nodes was driven, in part, by its desire to access storefronts for its
also implies that CPG manufacturers click-and-collect network. Walmart
would need to have more transpor- When a manufacturer has been expanding its click-and-col-
tation routes and logistics partners. lect infrastructure taking advantage
Partnering with their biggest retailers decides to sell [direct to of the fact that over 90 percent of
or with third-party logistics compa- consumer], it implies Americans live within ten miles of a
nies that can provide warehousing Walmart store. However, the click-
and distribution capabilities in metro significant changes in the and-collect model has to overcome
areas is one viable option. By hav- certain challenges. First of all, compa-
ing more decentralized distribution supply chain extending nies have to partner with facility own-
capabilities, DTC companies can test from how a final product ers like retail stores, office building
pilot programs locally, as a delivery managers, and others. For the con-
or return solution which works in is designed and sumer-facing front-end model, DTC
one area might not be economically players can choose one or a combina-
feasible in another area. manufactured to how it tion of the following options:
Once the “mile before the last mile” is delivered to the x In-store pickup from a retail part-
is covered (getting the products to ner: Typically used by DTC clothing
the last distribution stop), the “last end-consumer. companies, customers come inside a
mile” must be addressed. Either the partner’s retail store to ask the staff
company delivers the product to the consumer’s door- for their order. To improve workflow and customer service,
step, or the consumer covers the last mile and picks up the retail store should dedicate an exclusive online pickup
the order. If the order volume is big enough, delivering zone. This option is the preferred one for stores in urban
to the customer’s home as the final shipping destination areas with enough space to dedicate to DTC sales.
should not be a logistical problem. However, the majority x Drive-through or curbside pickup at a retail partner: This
of DTC CPG sellers do not have such economies of scale or is the most time-efficient option as customers, in a first-in,
predictable enough demand to accommodate this option. first-out service, can come and pick up their orders from
Efficient deliveries would also depend on powerful ana- a DTC’s retail partner store without getting out of the car.
lytical capabilities that would create optimal routes and The main challenge is the costly effort to create a physical
prevent delivery vehicle capacity from being underutilized. drive-through or curbside pickup area and to move inven-
Hence DTC CPG manufacturers might find it best to part- tory locations within the facility. Increasingly, a number
ner with the right third-party logistics partner for home of retailers like Kroger are redesigning stores to offer this
delivery services. service.
To lower the complexity of the last-mile deliveries, x Lockers: The previous two options needed personnel to
the click-and-collect model is becoming an increasingly be present to deliver product to the customer. Lockers pro-
popular option, as deliveries can be grouped together, vide the benefit of occupying little space while being “auton-
significantly reducing the number of drop-off spots.10 In omous” since an employee can load orders inside empty
this model, customers can collect their DTC orders from a lockers and customers can pick them up without physical
neighborhood store or from lockers placed in public access interaction with an employee. Lockers have been widely
spaces like train stations. DTC companies have to enter used in other countries and are often the primary method
into arrangements with retail store owners or with building for picking up product in some European countries.

The State of
Retail Supply
Chain 2019
For the back-end model for preparing orders for pick- complex.
up, a DTC company can choose between the following While DTC is challenging, the CPG companies that
options: can pull it off not only will see growth in their current
x Use retailer stores: Similar to the in-store pickup front- products but also will gain invaluable insights that will
end model, the retail partner’s employees are going to deal power future growth. The alternative might be “direct to
with handling and packing orders in an area designated the CPG graveyard.” c
for DTC sales. This can be helped by more efficient use of
existing store personnel. Notes:
x “Dark” stores: These facilities are closed to the public 1. “IRI CPG Trend Analysis Highlights Growth
and dedicated exclusively to preparing DTC orders. They Opportunities across Retail Channels,” IRI, July 26, 2017.
are designed for DTC sales and can be located in the out- 2. S. Veldhoen and R. Soundararajan, “2017 Consumer
skirts of big cities to take advantage of lower real estate Packaged Goods Trends,” PwC Report, 2017.
costs and better logistics network connections. After 3. P. Conroy, R. Nanda, and A. Narula, “Digital
orders are prepared in these stores, the front-end delivery commerce in the supermarket aisle–Strategies for CPG
model takes over. brands,” Deloitte University
x CPG manufacturers’ existing warehouses: This solution Press, December 2013.
may be economically feasible depending on the location 4. E. Koeller, P. Dawe,
of the existing warehouses. and A. Pittman, “How CPG
What happens when customers Supply Chains Are Preparing
don’t like going to a store to pick up for Seismic Change,” Boston
their packages, but they aren’t home Consulting Group Report,
during delivery hours and don’t January 2018.
trust leaving a package unat- 5. K. Alldredge, B. Brown,
tended all day long on their and M. Magni, “Playing
doorstep? DTC players need catch-up: How to part-
to be ready, by themselves or ner with the retailer of the
through partners, to deliver in a precise time slot if future,” McKinsey & Company, June 2016.
the consumer desires (with a premium delivery fee, of 6. “Brands need a DTC strategy,” WARC, June 15, 2017:
course). Otherwise they might lose a customer to another https://www.warc.com/newsandopinion/news/brands_
player already capable of offering such services. In certain need_a_dtc_strategy/38828
residential structures like apartments or condominiums, 7. “‘Amazon is an accomplice’: Birkenstock CEO accus-
this problem can be addressed by having building man- es Amazon of profiting off fake goods,” Business Insider,
agement install lockers that can be accessed by the DTC Dec. 22, 2017.
delivery provider.12 8. “Zebra study: 40 percent of parcels delivered within 2
hours by 2028,” Zebra Technologies, April 2018.
DELIVERING ON DTC 9. B. Warne, “Why This Shaving Startup Made a
Creating a DTC channel is not easy. Pricing and deliver- $100 Million Gamble on a 100-Year-Old Factory,” Inc.
ing products in a channel-agnostic way that balances both Magazine, May 2016.
offline and online strategies is challenging as different 10. G. Gopal and A. de Miguel, “Tackling the difficult
sales channels often have different cost structures, result- last mile,” ISE Magazine, December 2017.
ing in different prices or margins for the same product. 11. “24% of Europeans buy more in-store with click and
There’s the risk that consumers will demand to pay the collect,” Ecommerce News, November 8, 2017.
lowest possible price irrespective of the manufacturer’s 12. Gopal and de Miguel, 2017.
channel economics. The coexistence of brick-and-mor-
tar sales, digital commerce through e-tailers, and DTC D R. G U RRA M G O P A L ( G O PA L @ I I T. E D U ) IS AN
channels makes the coordination of in-store and online I N D U S TRY PRO F E S S O R I N I N D U S TR I A L T E C HN O L O GY
promotions more challenging. Marketing will have to A N D M A N A G E M E N T A T TH E I L L I N O I S I N S T IT UT E O F
make sure that brand messaging and content are consis- TE CH N O L O G Y . A L B E RT M A CA R R O N F A BRE GAT IS
tent across channels to minimize consumer confusion. A M E RG E RS A N D A CQ U I S I TI O N A N A L Y ST IN T HE
Assigning budgets to different channels will become more F I N A N CI A L I N S TI TU TI O N S G R O U P A T K PMG E S PAÑ A.

HOW TO MASTER THE CHALLENGES
OF DIRECT-TO-CONSUMER SHIPPING
It’s no secret that the digital economy has reshaped the
way consumers can and prefer to buy products. They’re
trained to expect brands will provide exactly what they
want, when they want it.
Because of this, distributors must be efficient – without

skipping a beat or making mistakes – in every aspect of Ken Weygand  Steve Greenspon
Solutions Architect  Founder and CEO
direct-to-consumer shipping to have a shot at meeting
Apprise ERP, Honey-Can-Do
those expectations. an Aptean company International
In this webinar, you’ll learn tips for mastering the

challenges of direct-to-consumer shipping and hear
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became a leader in drop-shipping by using tools that
helped it to: Available on Demand
b Provide/exchange information electronically and in www.supplychainquarterly.com/Aptean
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b Manage single-parcel shipments efficiently, without
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SCQ19_digital_aptean_webcast.indd 45 6/29/19 4:13 PM

The State of
Retail Supply
Chain 2019
Technology to the rescue
IT solutions can help retailers improve worker productivity in the brick-and-

mortar store, leading to better service and higher customer satisfaction levels.
O
mnichannel business trends are driving retail orga- level to better manage the store and its employees. I’ve not
nizations to increase their IT (information tech- seen this kind of activity on the retail side from a technolo-
nology) investments as they seek to meet customer gy perspective,” adds Simmerman, pointing to store opera-
demand for faster delivery, better online services, and a tions solutions, workforce management tools, and analytics
more diverse shopping experience. Alongside the need for as areas of growing interest. “Those retailers that are invest-
better technology to handle customer ordering, shipping, ing in [technology] solutions are way ahead of the curve,
and inventory processes, organizations are finding that they and they are using [them] to drive better operations and
can use technology to better manage the human side of the [promote] greater employee engagement and satisfaction.”
equation as well—especially in the brick-and-mortar store.
“[Employers] are asking their [in-store] associates to SEIZING STORE OPERATIONS SOLUTIONS
wear more and more hats,” explains Steve Simmerman, Simmerman and others say retailers are showing increased
senior director of sales for supply chain software devel- interest in store operations solutions that utilize hardware
oper JDA Software Group, describing the retail store as and software to better manage the changing demands of the
a “warehouse with a cash register” in which associates in-store associate—especially the ability to prioritize tasks
must perform distribution center-like tasks in addition to and improve productivity. JDA’s StoreOptimizer is one
their traditional customer service-oriented responsibilities. example. Built on the Google Cloud Platform, the software-
Without the right technology in place, balancing those as-a-service task engine continuously evaluates competing
responsibilities is extremely difficult, he says. priorities and directs employees to finish the most import-
The result is a growing focus on managing the “peo- ant tasks at any given time.
ple” side of the retail store with technology solutions that Stock replenishment is a case in point. Having the right
improve productivity, make it easier for associates to do products on the shelves to meet shopper demand is becom-
their jobs, and raise customer service levels. ing increasingly complex in an omnichannel environment,
“There are big investments going on at the retail store where retailers must accommodate “buy online, return in
19_DGTL_technology.indd 46 6/29/19 4:14 PM

T HIS AR T ICL E O R I G I N A L L Y A PPE A RE D I N TH E N O V E M B E R 2 0 1 8 I S S U E O F DC VE L O C ITY
store” (BORIS), “buy online, pick up in store” (BOPIS), themselves more attractive to their current and future work
and ship-from-store preferences, for example. Solutions force,” Simmerman explains. “[In addition], these capabil-
such as StoreOptimizer combine handheld hardware and ities help off-load the tedium of these tasks for supervisors
a smartphone-like interface with software that connects and managers—freeing them up to concentrate on running
to a company’s inventory management system, alerting the business [and] coaching employees.”
associates to in-demand items that need to be replenished
on the floor. Associates receive an alert on their handheld EMBRACING ANALYTICS
device directing them to a precise location in the stockroom Retailers are also turning to analytics to address labor-re-
to retrieve a specific number of items, and then directing lated concerns, says Toby Brzoznowski, co-founder and
them to the location on the floor where those items must chief strategy officer for supply chain technology developer
be replenished—all in real time. The process streamlines Llamasoft, which provides software that allows companies
associates’ work while improving on-shelf availability of to create digital models of their supply chains to test “what
products and reducing stockouts, driving increased cus- if?” scenarios for all aspects of business planning. Digital
tomer satisfaction, Simmerman says. modeling can be a crucial tool in managing seasonal labor
Honeywell Safety and Productivity Solutions offers a sim- demands as well as for determining how new policies or
ilar store operations tool in its Connected Retail Solution, processes may affect hiring, training, and other staffing
which combines software and hardware to deliver real-time concerns, he says. Using supply chain modeling software,
information to in-store associates for inventory manage- companies can test scenarios based on increased through-
ment, stock replenishment, click-and-collect ordering, and put to determine how much additional staffing may be
so forth. Beyond the benefits of greater productivity and required, for instance. The software can help determine
improved service levels, such tools also boost employee when to add a second or third shift, for example, or indicate
engagement, helping associates feel more confident in their how implementing next-day delivery might affect the need
ability to serve customers, says Karen Bomber, the compa- for labor across the entire retail organization.
ny’s director of retail industry marketing. “A lot of these things are interesting data and analytics
“[With these technologies], you are empowering associ- problems,” Brzoznowski says of the changing retail envi-
ates to know that without scanning a bar code or looking ronment. “[Retailers] are using our software to find the
something up, they have the technology in their hands that balance—to find the right mix of labor and automation, for
will tell them where something is,” which allows them to instance. They are testing different hypotheses.”
more easily—and more confidently—interact with cus- As with other aspects of the evolving retail environment,
tomers, she explains. much of what is changing can be traced back to e-com-
merce and omnichannel business trends. Brzoznowski
EMBRACING WORKFORCE MANAGEMENT TOOLS and others argue that implementing the right technology
External factors are coming into play as well. Record unem- solutions can go a long way toward making better decisions
ployment levels are helping to raise interest in labor-related about how to react and respond to those trends.
technology solutions, as employers seek to “do more with “The changing dynamic of [adopting] more of an omni-
less” and find candidates to fill open positions. Simmerman channel or e-commerce strategy [is driving retailers] to
points to growing interest in workforce management offer more aggressive services to their customers. As a
(WFM) solutions that cater to the demands of the chang- result, they have to leverage their physical operations—not
ing work force as one example. Such tools allow employers just their warehouses, but also their retail stores and the
to create more accurate schedules and minimize staffing people who are running them,” he says, pointing to data,
shortages or over-coverage, and they also put more power digital decision-making, and technology in general as an
in the hands of associates. For instance, JDA’s WFM solu- important piece of the puzzle. “[Organizations are] taking a
tion for retailers includes mobile capabilities that allow step back and taking a data-driven approach to figuring out
associates to adjust their schedules, swap shifts, and request exactly what they can offer and what kind of services they
time off—all from their smartphones. can, sustainably, provide to customers.” c
“More and more customers are moving to this type of
capability to provide more flexible work schedules, making V I CTO RI A KI CK H A M I S S E N I O R E D I TO R A T DC VE L O C ITY.
19_DGTL_technology.indd 47 6/29/19 4:14 PM

BY BEN AMES
The State of
Retail Supply
Chain 2019
new tiles to the

Adding
omnichannel mosaic
T
As retailers continue alk to enough retailers, wholesalers, number of players in the marketplace.
and manufacturers, and they’ll tell To learn more about the current state
to expand their you that building up their omni- of omnichannel fulfillment practices, DC
omnichannel service channel fulfillment networks is imper- Velocity teamed up with ARC Advisory
ative for maintaining market share. But Group, a Dedham, Massachusetts-based
offerings, they’re dig a little deeper, and you’ll soon realize management consulting firm, to conduct
that omnichannel retailing is not a single an industry survey.
increasingly turning bullseye target, but rather a diverse mosa- Respondents answered 32 questions
to a traditionally ic of operations that can include every- about their approach to meeting current
thing from shuttling inventory between challenges in omnichannel commerce,
underused resource: brick-and-mortar storefronts to offering with a focus on order fulfillment and,
BOPIS, or “buy online, pick up in store,” especially, the changing role of the retail
the brick-and- services. store in helping companies deal with a
mortar store. Many practitioners have traditionally surging tide of online orders. (For more
defined “omnichannel” as “distribution information on the study, see the sidebar
from anywhere,” including the distribu- on page 50.)
tor’s distribution center (DC), direct from
the supplier, or shipped from a store or OMNICHANNEL COMES IN MANY
third-party logistics partner (3PL). But SHADES
today, the term “omnichannel” seems to The survey revealed that retailers deploy
have almost as many definitions as the a broad spectrum of cross-channel tactics
to support sales in today’s challenging
omnichannel environment from “order at
store, fulfill from a warehouse (or another
[FIGURE 1] WHICH OMNICHANNEL CAPABILITIES DO YOU
store)” to “return to store, even when
CURRENTLY ENABLE? goods are ordered online.” (See Figure
(% of respondents)
1 for the full rundown.) The survey also
Order at store, fulfill from warehouse 51 looked at what particular tools respon-
Rebalancing inventory, ship excess inventory from one store to another 40 dents rely on to get those jobs done. The
data showed that the most common tech-
Return to store, even when goods are ordered online 37
nologies or applications currently used by
Parcel return, even when goods were bought in a store 33 respondents as part of their omnichannel
Order at store, fulfill from another store 19 initiatives are warehouse management
systems (80 percent), transportation
Other 19
management systems (76 percent), and
Note: Percentages add up to more than 100 because respondents were allowed to select multiple total-landed-cost analytics (61 percent).
responses. (See Figure 2 for the complete list.)
The respondents are also taking a vari-
19_DGTL_omnichannel.indd 48 6/29/19 4:50 PM

T HIS AR T ICL E O R I G I N A L L Y A PPE A RE D I N TH E N O V E M B E R 2 0 1 8 I S S U E O F DC VE L O C ITY
ety of actions to recover the supply chain costs associated A GROWING ROLE FOR STORES
with fulfilling omnichannel orders. The numbers show that Over the past few years, there has been increasing atten-
the most common approach is to collect fees for expedited tion paid to the practice of using store inventory to fulfill
delivery, cited by 51 percent of survey-takers. Next on the e-commerce orders. In response to this growing trend, this
list was charging delivery fees for all orders (40 percent), year’s survey took a particularly close look at the role of
followed by collecting fees for returns shipments (28 per- the store in omnichannel fulfillment. While some major
cent). (See Figure 3.) retailers, such as Walmart and Best Buy, are certainly using
Even with these efforts to recover costs, retailers’ invest- stores in this capacity, the survey found that the majority of
ments in their omnichannel capabilities (which include e-commerce orders are still being filled from distribution
software, hardware, training, and shipping, among others) centers. Sixty-eight percent of respondents said they were
add up to serious money. So, what’s motivating compa- fulfilling at least some of their orders through a traditional
nies to continue adding tiles to the omnichannel mosaic? DC that also handles e-commerce. Thirty-nine percent
Respondents said the top four reasons they were participat- said items were shipped directly from the manufacturer
ing in omnichannel commerce or intending to do so were: or supplier, and 32 percent said they filled orders through
to increase sales (51 percent), to increase market share (50 a web-only DC. Only 26 percent of respondents said they
percent), to improve customer loyalty (45 percent), and to were filling e-commerce from the store.
increase margins (21 percent). When were retailers choosing to use stores to fulfill

The State of
Retail Supply
Chain 2019
e-commerce orders? The primary reason cited was ABOUT THE STUDY
inventory constraints or stockouts at the local DC (63 This year’s omnichannel study was conducted by
percent). That was followed by distance to the customer ARC Advisory Group in conjunction with Supply Chain
delivery location (53 percent) and resource constraints Quarterly’s sister publication DC Velocity. ARC analyst
at the DC (13 percent). Chris Cunnane oversaw the research and compiled the
“Survey respondents indicated that they frequently use results.
stores for e-commerce picking, packing, and shipping The study explored current challenges in omnichannel
when DCs are unable to meet overall order volumes,” commerce, with a focus on order fulfillment and, espe-
said ARC Senior Research Analyst Chris Cunnane, who cially, the changing role of the retail store. Respondents
oversaw the research and compiled the results. “In this included logistics professionals from a variety of industry
case, when the DC is flooded with orders and will not be verticals, who submitted answers during July and August
able to meet delivery timeframes, it will [hand off] the 2018.
order to a local store to make sure the customer gets the As for the demographic breakdown, the majority (60
order when they expect it.” percent) of respondents sold goods through a combination
To get a better sense of store-based fulfillment practic- of direct and indirect sales channels. Another 30 percent
es, the survey also asked respondents how they handled sold merchandise through direct retail only, and the
e-commerce orders filled through a store. The over- remaining 10 percent through indirect sales channels only.
whelming majority (94 percent) said the stores both A report containing a more detailed examination of the
picked orders and shipped them to customers. Another omnichannel survey results is available from ARC. For
59 percent said their stores picked orders and held them order information, visit https://www.arcweb.com.
for customer pickup, while 47 percent said orders were
[FIGURE 2] WHICH OF THE FOLLOWING TECHNOLOGIES DO YOU CURRENTLY USE AS PART OF

YOUR OMNICHANNEL INITIATIVE?
(% of respondents)
Technology Currently Do not use, Do not use,

use but plan to use and do not plan to use
Warehouse management system (WMS) 80 7 13
Transportation management system (TMS) 76 19 6
Total-landed-cost analytics 61 20 19
Bar-code scanning on the store floor or in
the backroom (not at point of sale) 60 19 21
Distributed order management (offers common
view of systemwide inventory, event management) 59 27 14
Labor/Workforce management system 58 20 22
Inventory optimization 57 31 11
Demand management 56 27 17
Real-time inventory location application for
the store 43 21 36
Reverse logistics system (robust returns processing) 41 28 31
Cost-of-quality analytics (analyzes what fulfillment
mistakes cost in terms of lost customers) 35 29 36
RFID at the store 15 31 54
Note: Percentages add up to more than 100 because of rounding.

shipped from the DC to the store for customer pickup. [FIGURE 3] HOW DO YOU RECOVER
(Survey-takers were allowed to select multiple responses to SUPPLY CHAIN COSTS?
(% of respondents)
this question.)
“The most popular method for store fulfillment, as Collect fees for expedited delivery 51
selected by 94 percent of respondents, is to pick orders in
the store and ship them to the customer,” Cunnane said. Collect delivery fees for all orders 40
“Compared to last year’s survey, when fewer than 70 per- Collect fees for returns shipment 28
cent of respondents identified pick and ship from the store, Other 23
this is becoming a bigger part of store operations.”
Turning retail stores into fulfillment operations will Collect fees for returns processing 18
not be easy, however. Survey respondents identified three Collect fees for in-store order fulfillment 14
main capabilities that were crucial to a successful in-store
Note: Percentages add up to more than 100 because respondents were
fulfillment program. More than half (58 percent) of respon-
allowed to select multiple responses.
dents said that they needed to have visibility of inventory
across all locations (58 percent), while 53 per-
cent said the fulfillment process had to be easy
for store staff to implement. Finally, 42 percent [FIGURE 4] WHAT PERCENTAGE OF YOUR DIRECT
acknowledged that store associates would have RETAIL REVENUE COMES FROM EACH CHANNEL?
to be trained in how to properly pick, pack, and (% of respondents)
ship orders.
“Training is a big part of ship-from-store, as Channel % five % today % five years
the skills required for floor staff and warehouse years ago from now
staff are significantly different,” Cunnane said. (forecast)
“Training store associates on how to proper- Brick and mortar 64 57 50
ly pick, pack, and ship speeds up the process Online (includes mobile) 22 33 39
while helping to eliminate errors or damaged
merchandise.” Call center/Catalog 18 14 16
Given the need for additional investment in Note: Percentages add up to more than 100 because of rounding.
time and training, retailers appear to be some-
what selective about the stores they use for
e-commerce fulfillment. Only 40 percent of respondents Still, it’s clear where the trend line is going. Just five years
said they had enlisted all or almost all of their stores in ago, brick and mortar generated a full 64 percent of sales,
the effort. From there, the numbers dropped off quickly. according to the survey respondents. Brick and mortar’s
Twenty-seven percent indicated they handled e-commerce share has slipped to 57 percent today, and respondents
fulfillment at “a widespread selection” of stores, and anoth- expect it to slide further—to 50 percent—in five years’
er 27 percent at “a select subset” of stores. Thirteen percent time. By contrast, survey-takers see online’s share, which
said they used stores on a limited pilot basis, and 7 percent stood at just 22 percent five years ago, rising to 39 percent
indicated that they didn’t use stores for e-commerce fulfill- by 2023. (See Figure 4.)
ment at all.
WORK IN PROGRESS
BRICK AND MORTAR IS STILL KING Taken together, the survey results indicate that omnichan-
The e-commerce revolution is happening fast, and our sur- nel fulfillment is still in a state of flux. As retailers scramble
vey showed that most retailers are investing large amounts to adjust to a shifting marketplace, they continue to fine-
of time, labor, and money to keep up. But every gold rush tune their networks, processes, and technologies. At the
needs a reality check, so it’s worth remembering that brick same time, they’re adding tiles to the complex omnichan-
and mortar is still king. Asked what percentage of their nel fulfillment mosaic. To make it all work, they’re relying
direct retail revenue currently comes from each channel, more and more on a resource that was once just a bit player
respondents said 57 percent came from brick-and-mortar in the omnichannel game: the retail store. c
outlets, 33 percent from online (including mobile) sales,
and 14 percent from call center/catalog sales. B E N A M E S I S S E N I O R E D I TO R A T D C V E L O C ITY.

The State of
Retail Supply
Chain 2019
Livin’ in
the future
The race toward automation
continues, as a rise in goods-to-
person fulfillment, increased adoption
of warehouse execution systems, and
greater use of autonomous mobile
robots top the list of material handling
technology trends to watch in 2019.
W
arehouses and DCs will continue to implement
technology-based material handling solutions
in 2019 as they strive to work faster, smarter,
and with fewer human resources. And though the use
of futuristic technologies such as drones and augment-
ed reality is on the horizon, most experts agree that the
major trend in the year ahead will be the expanded use
of more recently proven technologies—such as goods-
to-person fulfillment systems—that can deliver the best
return on investment (ROI).
“Everyone wants to move fast,” says Norm Saenz, man-
aging director at supply chain solutions consulting firm
St. Onge, pointing to the buzz around robotics, auton-
omous vehicles, and similar cutting-edge technologies.
“What they have to do, though, is make sure it’s the right
investment.”
Daniel Johnson, an account executive with supply
chain consulting firm Fortna, agrees, adding that the
more “tried and true” automated material handling
solutions make the most sense for many organizations
and will become more widely used in the year ahead. He
points to shuttle systems, automated truck loaders, and
robotic depalletizers as examples of technologies in use
and delivering an ROI for many clients today.
“Looking out to 2019, we’ll see more adoption of some
19_DGTL_trends.indd 52 6/29/19 4:17 PM

T HIS AR T ICL E O R I G I N A L L Y A PPE A RE D I N TH E D E CE M B E R 2 0 1 8 I S S U E O F DC VE L O C ITY
of those existing technologies,” he says, emphasizing zations with very basic warehouse and DC operations
growth in goods-to-person order picking systems in ease their way into automation. A natural progression
particular. “We’ve seen a massive return on investment often involves moving from simple racks and industrial
there, from both a productivity and quality stand- trucks to conveyors and warehouse management soft-
point.” ware (WMS) before plunging into more advanced AS/
Both Saenz and Johnson predict that warehouse soft- RS types of systems, he adds.
ware implementation will rise in 2019 as well, pointing “We think a customer should compare the more
to growing demand for warehouse execution systems proven technology against robotics and the [more
(WES) that improve communication and order flow complex] offerings and decide if that’s enough for
throughout a facility. And in a nod to at least one them,” Saenz says. “Companies definitely want to learn
“futuristic” trend, they agree that more widespread use about the newest technology and see if it makes sense
of autonomous mobile robots is in store for 2019 too. for them, but if there’s a level right below that provides
Here’s a look at how goods-to-person picking, soft- what you need for less [money] and [a quicker] ROI—
ware implementation, and autonomous mobile robots then that’s the right decision.”
will shape the warehouse and DC landscape in the year
ahead. WES GAINS MOMENTUM
Experts say more organizations are purchasing soft-
GOODS-TO-PERSON ON THE RISE ware to manage and control warehouse and DC oper-
A surge in e-commerce sales and the resulting need ations today, and that the trend will continue in 2019.
to meet omnichannel fulfillment demands is driving “There are still a lot of companies with legacy
much of the change across the warehousing and logis- systems that don’t provide a lot of the functionality
tics industry, and it’s certainly a driver in goods-to- you need today to handle different orders and more
person fulfillment, says Marvin Logan, vice president orders,” Saenz explains. “You’ll see a lot more legacy
of consulting services for systems integrator Bastian systems continue to turn over to the bigger WMS
Solutions. A shift to smaller orders containing multiple systems, and you’ll see more on the controls side as
stock-keeping units (SKUs) has changed the picking well. All this equipment and automation needs good
landscape for many organizations, he says, pushing software to run it.”
them toward processes and technologies that can Johnson agrees and points to the growth in ware-
reduce a worker’s travel time, improve overall produc- house execution systems (WES), which help highly
tivity levels, and minimize errors. With goods-to-per- automated warehouses and DCs connect different sys-
son fulfillment, machines retrieve products and bring tems and functions in one platform, improving com-
them directly to the picker, eliminating the need for the munication across the entire operation. As Johnson
worker to roam the aisles to collect items for an order. explains, a WES “pulls” various functions from a
Technologies range from simple conveyor-based sys- traditional WMS, such as waving, order release, order
tems to more complex automated storage and retrieval diverting, and so forth, and combines those functions
systems (AS/RS), as well as robotic solutions. As tech- with a traditional warehouse control system (WCS),
nology advances, the goods-to-person landscape is which controls equipment, automation, and routing.
expanding with even more choices, Logan adds. With this additional layer of communication, he says,
“There are new players with new technologies that organizations have greater visibility across the opera-
will be introduced in the next year or two, to [provide] tion and can improve the flow of orders through the
even more options in goods-to-person for fulfillment,” warehouse.
he explains. “We’ve seen a lot of it, and we’ll see it pick “With the WES, I’ve now got a layer that’s ‘talking’
up into next year.” between each piece of automation,” he explains. “We
Saenz agrees, emphasizing that a measured approach will definitely see more use of that ahead.”
to implementing automated solutions often works Logan agrees, adding that the need for better soft-
best. For example, he says he expects to see greater ware increases as companies adopt new processes for
use of conveyor systems in the year ahead as organi- filling e-commerce and omnichannel orders. Rather

The State of
Get Supply Chain

Retail Supply
Chain 2019
than push large batches of orders to the DC for fulfill-
Executive Insight FREE!

ment, companies must pull orders to various parts of
the warehouse or DC to fill those smaller, more diverse
orders, he explains, creating a greater need for communi-
cation and visibility across the facility.
“That will increase, and the trend will continue into
next year,” he says. Supply Chain Executive Insight, a weekly
electronic newsletter from the editors
AUTONOMOUS MOBILE ROBOTS FIND THEIR PLACE of CSCMP’s Supply Chain Quarterly,
Saenz says he expects more companies to start using is written for high-ranking supply chain
“Kiva-type systems” in the warehouse and DC, refer- professionals like you.
ring to the compact orange robots used in Amazon.
com’s DCs to ferry racks of products to order pickers.
Supply Chain Executive Insight gives you
(Although Amazon took the Kiva robots off the market
after it acquired the parent company, Kiva Systems LLC, the information edge you need to be successful
in 2012, other robotic developers, including GreyOrange, in the supply chain profession. Each week it
Swisslog, and Otto Motors, are introducing similar solu- provides news, analysis, videos, and
tions today.) Such solutions are especially helpful in auto- commentary on research, emerging trends,
mating the picking process, resulting in greater produc- and business developments affecting
tivity, Saenz says. Similarly, Johnson and Logan point to the global supply chain.
an increase in shuttle systems that can be used to retrieve
products from storage and deliver them to the picker. The newsletter also regularly features
“Picking is where most of the labor is” in a distribution thought-provoking commentary from SCQ’s
center or fulfillment facility, Saenz explains. “So it helps
Editorial Director Dave Maloney and Group
to have something that is moving around [the DC], grab-
bing orders for you or helping you be more productive in Director of Editorial Mitch Mac Donald.
other ways. We will see a lot more of these types of solu- Both Maloney and Mac Donald draw on
tions [deployed] to assist in the picking process.” their experiences as veteran editors and
Saenz, Johnson, and Logan point to an increase in reporters to share their perspectives on
labor-saving technologies such as autonomous forklifts key supply chain trends and issues.
and automated guided vehicles as well.
“[These are] drawing interest, and I’m sure we’ll see Stay ahead of the supply chain
more of them [in use] in the next year,” Logan says. “It’s learning curve and sign up today at
happening already in Europe, and I think we’ll see more SupplyChainQuarterly.com/newsletters.
here. It may not make sense if you only have one or two
forklifts, but if you have a fleet, it’s another story.”
Saenz says he thinks the use of autonomous lift trucks
will skyrocket in large operations.
“[Companies can realize] big savings there—tangible
savings for the warehouse,” he explains.
Looking beyond the next year, consultants say that
future-focused technologies such as augmented reality
(AR) and more sophisticated robotics are ripe for invest-
ment and will become the next automation wave.
“Full-picking robots, each-picking robots, [human-
like] bots, and augmented reality—those are more futur-
istic types of automation where we are seeing a lot of
investment,” Johnson says. c
VI CTORI A K IC K HAM IS SENIOR EDIT OR A T D C V E L O CI T Y .

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The State of
Retail Supply
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What are some ways to optimize transportation strategy and lower freight shipping costs?

What are some ways to optimize transportation strategy and lower freight shipping costs?

What are some benefits of consolidating shipments and goods?

What are some benefits of consolidating shipments and goods?

TheState of

A SPECIAL ANNUAL SUPPLEMENT TO

19_DGTL_COV.indd 1 6/29/19 3:38 PM

SCQ19_kenco.indd 3 6/29/19 3:43 PM

Chain 2019 and innovations from

All-Digital Issue Supply Chain Quarterly

5 FROM THE EDITOR

12 ROBOTS CARRY THE LOAD

2 The State of Retail Supply Chain 2019

19_DGTL_TOC.indd 2 6/29/19 3:46 PM

20 STRIKING THE RIGHT BALANCE

The State of Retail Supply Chain 2019 3

19_DGTL_TOC.indd 3 6/29/19 3:46 PM

done so for over 70 years. Our hands-on approach isn't

limited to assembling your custom-made material handling

solution; we also provide exceptional customer service,

maintenance, and training resources. Our experts are ready

to help you meet and exceed your goals.

19_DGTL_letter.indd 4 6/29/19 3:48 PM

The State of Retail Supply Chain 2019 5

19_DGTL_letter.indd 5 6/29/19 3:53 PM

Experience KNAPP, a leader in digital value chain innovation.

Production logistics Distribution logistics Local hubs Store / Customer

Smart factory Smart warehouse Smart hubs Last mile

19_DGTL_letter.indd 7 6/29/19 3:49 PM

8 The State of Retail Supply Chain 2019

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The State of Retail Supply Chain 2019 9

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$900,000 that are used in some combination to produce

10 The State of Retail Supply Chain 2019

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The State of Retail Supply Chain 2019 11

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12 The State of Retail Supply Chain 2019

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The State of Retail Supply Chain 2019 13

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WISCONSIN BUSINESS BENEFITS FROM

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cylinder eliminates the need for additional expensive, heavy

For businesses without a propane tank on-site, the refueling

19_DGTL_robotics.indd 15 6/29/19 3:57 PM

Are we there yet?

16 The State of Retail Supply Chain 2019

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The State of Retail Supply Chain 2019 17

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18 The State of Retail Supply Chain 2019

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The State of Retail Supply Chain 2019 19

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20 The State of Retail Supply Chain 2019

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The State of Retail Supply Chain 2019 21