If you are not a retail industry supply chain manager, you might not be paying much attention too the world of on-line orders, same day deliveries, or the Amazon Effect. In fact, all the developments in retail marketing and distribution might make you thankful you are in another business. If only that were true. The fact of the matter is that the pressure the retail industry is exerting on the entire supply chain is affecting us all.
One major impact, already being felt is the growing shortage of industrial space in the metropolitan areas. As we mentioned in our last blog, Amazon has established several hundred distribution centers around the country to deliver rapid service to its customers. In an effort to compete with that, competitors have rushed into the metro areas, attempting to establish their own last mile positions, driving costs up and placing pressure on space availability. This of course, affects all firms that might be trying to secure industrial property. Some retailers are turning to their stores as distribution points. Target, for example, is remodeling 1000 stores over a three-year period, according to the latest issue of Supply and Demand Chain Executive. The utilization of retail stores for last mile deliveries can be a good solution, but it is likely to present some inventory management challenges.
Not all retailers have stores than are suitable for shipping more than a few orders a day, and some of them are looking to logistics service providers (LSP) for a solution. The more progressive LSPs have established so called omnichannel operations and are servicing E Commerce customers, as well as their more traditional clients. The increased cost of doing so will no doubt be spread across their entire customer base, resulting in higher prices for all. I believe the use of reliable LSPs is the best answer to competing with Amazon and other large on-line sellers. According to the recent 2018 State of Retail Supply Chain report, 36% of the respondents plan to rely heavily on LSPs over the next three years. Here again, this will put pressure on the non-retail segments of the LSP users.
Keep in mind however, it is not always necessary to locate right on top of your customers unless you are trying to provide same day or same hour deliveries. Most non-retail customers seem to be satisfied with next morning delivery, and this can be accomplished by serving large cities from outside the metropolitan areas, where costs and congestion will be less. For example, delivery from Cedar Rapids to Chicago can comfortably meet next day requirements.
Another major issue is the effect on motor carrier service, rates, and capacity. Already a problem for some, as shipments get smaller, more trucks and drivers will be needed; and the problem will be exuberated. Up until now the driver shortage has been primarily a truckload, over the road problem. Recently however, with the ever-increasing number of small shipments, we have seen problems in the LTL sector, as well.
Finally, I believe we will see increasing pressure from non- retail sectors on LSPs, carriers, and suppliers. Even when product lines may differ, faster service is always good. It usually results in lower inventories, reduced warehouse costs, and other economic benefits. At some point, some progressive supply chain manager is going to stand up and say, “Hey, you did it for them. How about us?”