Patience was once considered a virtue. However, it is not a word often associated with consumers in today’s marketplace. From Amazon Dash to Alexa, it is possible to order everything from lunch to luxury items via mobile apps, and receive products overnight or even within one hour. And, the trend of “impatient customers” shopping online, looking for fast and free delivery, shows no signs of slowing down.
In the second quarter of 2017, e-commerce sales reached more than $111 billion on a seasonally adjusted basis, stated a U.S. Census Bureau report. This means that e-commerce accounted for 8.9 percent of all retail sales during that period. Anecdotally, LEGACY Supply Chain Services, which provides e-fulfillment services to retailers in the United States and Canada, states that the large retailers it serves in Canada are experiencing up to 100 percent year-over-year growth in e-commerce.
The variety of items that consumers can purchase online is also expanding. One of the most widely covered news events of summer 2017 was Amazon’s purchase of Whole Foods and its aggressive entry into the grocery retail sector. With consumers demanding fresh, locally sourced food and moving away from past practices of eating processed foods with a long shelf life, meeting these needs on a large scale with fast delivery is even more complex than serving other markets dominating the e-commerce space. The food supply chain requires exact temperature controls, strict adherence to “use by” dates, and compliance with the Food Modernization Safety Act.
Customers in the Driver’s Seat
While a boon for impatient customers looking to access everything easily and quickly, e-commerce and the Amazon business model appear to be having a profound impact on supply chain management. “Consumers have become the driving force behind logistics spending,” according to A.T. Kearney’s latest State of Logistics report.
There seems to be agreement across the transportation sector that these market dynamics will affect supply chains in fundamental ways for a long time. “Industries are churning with disruption and business as usual will not return,” states the Kearney report.
Companies that serve the retail and manufacturing verticals confirm the study’s finding with real-world examples. Ryder Logistics, for example, says that many clients face the need to re-engineer their entire supply chain. “What was once a unidirectional process has now become much more complex as retailers deal with the full blast of customer whims,” says Jimmy Fitzpatrick, group director for Ryder.
Pat Antonucci, vice president of Canadian operations for LEGACY Supply Chain Services, echoes these comments. LEGACY provides e-fulfillment and other logistics services to customers in the United States and Canada. From Antonucci’s perspective, it is the smaller retailers who are most challenged to meet the demands of today’s impatient customers.
With so many product choices and ways to access them, brand loyalty cannot protect a company from being replaced by a faster or less expensive option or retailer. “Part of LEGACY’s culture is that you never get a second chance to make a good first impression,” says Antonucci. Many customers LEGACY serves literally do not get second chances very often if there is an issue with products or deliveries, he notes.
The New Normal
So, how do supply chain managers operate in this “new normal”? Many establish regional or local delivery models to place products closer to customers, a strategy that has led to more warehouses being added to their networks. Additionally, companies need fewer, smaller shipments often being delivered to homes, which has led to an increased demand for parcel and courier services.
Across both the warehouse and transportation sectors, there is tremendous pressure to perform at higher levels, accelerating the speed of delivery. This has led to a new focus on technology solutions for every aspect of the supply chain. Across the board, supply chain managers are looking for technology tools that provide greater visibility, actionable intelligence, and connectivity.
In the mid 1990s, companies in a variety of industries were embracing just-in-time inventory (JIT) management, looking to move away from costly warehouse operations and keep freight moving. During that time, some trucking companies referred to themselves as “rolling inventories” with the freight they delivered going almost directly into production lines or on retail shelves, bypassing the need for warehouses.
Now, warehouses are in style again, as retailers and manufacturers are establishing local and regional distribution models, placing goods closer to the consumer. The growing demand for warehouse space is resulting in a tightening of availability. Availability is now at 7.8 percent according to CBRE, an industrial real estate company, and research by A.T. Kearney indicates that the warehousing industry will continue to grow at an annual rate of 3 percent through 2021.
For companies choosing to add warehouses in more locations, not only is there little availability, but also the cost for space is rising as high as the ceilings. And, unlike the warehouses that were bypassed in the 1990s, today’s warehouse operations must achieve optimal efficiency and velocity in a market that has had traditionally tight margins, often in the 3-percent range.
Small Retailers, Large Challenges
Smaller retailers are most challenged with the need for more warehouses. “When you have regional volume and are looking at regional distribution capabilities, you have to weigh the cost of additional or even duplicate inventory versus the revenue generated by speed to market,” says Antonucci.
One option is to outsource fulfillment to a third-party logistics (3PL) provider. This allows the retailer or distributor to avoid investing its own capital in new facilities and systems. Third-party providers are often able to combine their services for multiple clients so that each customer experiences cost savings and offer such specialized services as dedicated, multi-tenant or public warehousing options as well as temperature-controlled facilities. Services, include kitting, labeling, packaging, and reverse logistics.
And a 3PL allows smaller customers to focus on marketing and merchandising functions that are essential to drive growth in a dynamic global marketplace.
Carriers, Couriers in Demand
Impatient customers have also led to an increased need for parcel providers. From major brands such as FedEx and UPS to smaller, niche couriers, the small package business is booming. Parcel volumes had risen 6 percent over the prior year, with forecasters expecting parcel shipping revenues to rise to $93 billion by 2019, says A.T. Kearney’s latest research.
Even the truck rental business may be impacted. As the demand for last-mile delivery increases, there could be more requests to lease sprinter vans and other smaller delivery vehicles.
With shippers moving distribution centers closer to their customers, some parcel providers and couriers are looking at ways to offset the cost of adding vehicles and re-configuring networks. Both FedEx and UPS have relationships with the U.S. Postal Service, supplementing their home delivery networks. And both companies have developed programs to support reverse logistics and facilitate returns.
While less visible to the end user, less-than-truckload and even truckload carriers still play a role in this evolving market. For example, a large manufacturer may combine products going to a variety of retailers in a specific geographic location, shipping goods to distribution centers using truckload or other economical transport providers. From there, parcel carriers or couriers take over the last-mile delivery.
Technology Enables Execution
From the cabs of trucks and mobile devices used by couriers to conveyors and sortation devices on warehouse floors, managers are looking at technology solutions that support a fast, flexible delivery network. Automation has long been in play in the warehouse operation, and its adoption appears to be growing.
AGVs on the Move
“We are seeing a greater demand for autonomous guided vehicles (AGVs),” says Ryder’s Fitzpatrick. “Products are stored in racks in very large warehouses, and AGVs bring the goods to locations where warehouse workers can use pick-to-light or other systems to fulfill orders.”
In addition to more advanced warehouse management systems (WMS), some companies are also investing in transportation management systems (TMS). Providers such as Jagged Peak offer multiple technology solutions for e-commerce, including a web store ECP/CMS, distribution order management system, WMS and TMS, with each module operating in a SaaS environment.
“Our technology opens doors for smaller, less-expensive couriers to compete with larger firms.” says Hitpeet Kang, vice president of marketing and business development for Jagged Peak.
It is also possible to integrate WMS, TMS, and other systems from a variety of software providers in order to maintain control tower visibility of every aspect of the supply chain, a critical component of serving today’s impatient customers.