June 25, 2013
Will Retailers Deliver Better Results Via Logistics?
The Council of Supply Chain Management Professionals 24th Annual State of Logistics Report, released last week in Washington, D.C., suggests the economy continues to make headway, albeit at a slow and steady pace. The report showcases key trends and U.S. logistics costs for 2012, including both total and sector level detail.
Total U.S. business logistics costs rose 3.4 percent to $1.33 trillion in 2012 with inventory carrying costs up four percent and transportation costs up three percent. Increased carrying costs were due to higher taxes, obsolescence, depreciation and insurance tied to the rise in inventory levels, while increased transportation costs were due to higher rates, not increased volume.
The report suggests slow growth will be the "new normal" for the next several years, with GDP growth hovering just below the three percent level needed to cut into unemployment. Logistics faces a bumpy road, although the economy is showing promising signs. The trucking industry has had capacity issues and even in this lower volume environment will have difficulty meeting demand. The railroad industry is well positioned to take up the slack with intermodal services. Inventory management techniques are improving and these are likely to be some of the major lessons learned coming out of a very trying recovery.
BrainTrust
Recent Discussions
Discussion Questions
What are the biggest challenges facing retailers and their suppliers in terms of logistics? Where are the biggest opportunities for improvement?
Poll
The supply chain and the many elements of the logistics network are safe from Millennial demands. Yes, the Millennials and their demands for varying assortments and selling channels add pressure to the supply network, but nothing like the early years (80-90s) where the SCM space went through its first major re-shaping in many, many years.
There are many opportunities in the logistics space. One area is how retailers work with suppliers in the demand space. The tighter the loop between demand and supply, the less inventory needed to support the shoppers across all channels. Using more science in this area with predictive demand technology and more clean granular data is also a win for the retailers and suppliers.
Keep pushing for getting the inventory closer to the point of the actual transaction and the margins keep growing—end to end—from the manufacturer to the retailer.
Major CPG companies have been saying that it sometimes costs more to get their products to market than it costs to manufacture them for years now. There are bright spots in the supply networks, like rail, however that doesn’t alleviate fuel and labor costs that have become an increasingly large component of a company’s expense structure.
Retailers therefore need to work all the way through the supply networks to eliminate and extract costs literally from “farm to fork.” We are seeing some great collaboration in this area now, and hopefully, these best practices will spread across geographies.
One of the things I always question when shown year-over-year statistics of the “physical economy” is the expansion of the “virtual economy.”
We try to compare logistics costs between time frames and countries, yet this ignores the changing mix of economic goods as more of the economy becomes “virtual.” Combine this with direct to consumer sales and you realize what a significant shift is occurring as we move from “mass merchandising” to “custom merchandising.” This is only becoming more significant as 3-D printing and just-in-time manufacturing lead to total customization of products and the need to deliver small packages across a wide network.
Probably the cheapest way for retailers to deliver products is to put the cost on the consumer. Buy online and pick-up at store still seems to be the best business model for retailers who have a physical presence. This allows them to use the distribution network they have in place, while avoiding the costs associated with the “last mile” for getting products to the consumer. I think leveling of the sales tax hurdle will be a great benefit for this model.
Efficiency through process and technological improvements are the only ways to continue to squeak out improvements in the global supply chain. Disruption caused by political/social unrest in pretty much a constant going forward. Energy costs, already rising with oil’s increases will escalate with the push for carbon credit programs (and a bevy of other reasons.) So, the good news: As overseas labor, fuel, and regulations continue to increase, the US may see more on-shoring. As a result the supply chain gets shortened as products are produced closer to the end-consumer making distribution slightly easier.
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The supply chain and the many elements of the logistics network are safe from Millennial demands. Yes, the Millennials and their demands for varying assortments and selling channels add pressure to the supply network, but nothing like the early years (80-90s) where the SCM space went through its first major re-shaping in many, many years.
There are many opportunities in the logistics space. One area is how retailers work with suppliers in the demand space. The tighter the loop between demand and supply, the less inventory needed to support the shoppers across all channels. Using more science in this area with predictive demand technology and more clean granular data is also a win for the retailers and suppliers.
Keep pushing for getting the inventory closer to the point of the actual transaction and the margins keep growing—end to end—from the manufacturer to the retailer.
Major CPG companies have been saying that it sometimes costs more to get their products to market than it costs to manufacture them for years now. There are bright spots in the supply networks, like rail, however that doesn’t alleviate fuel and labor costs that have become an increasingly large component of a company’s expense structure.
Retailers therefore need to work all the way through the supply networks to eliminate and extract costs literally from “farm to fork.” We are seeing some great collaboration in this area now, and hopefully, these best practices will spread across geographies.
One of the things I always question when shown year-over-year statistics of the “physical economy” is the expansion of the “virtual economy.”
We try to compare logistics costs between time frames and countries, yet this ignores the changing mix of economic goods as more of the economy becomes “virtual.” Combine this with direct to consumer sales and you realize what a significant shift is occurring as we move from “mass merchandising” to “custom merchandising.” This is only becoming more significant as 3-D printing and just-in-time manufacturing lead to total customization of products and the need to deliver small packages across a wide network.
Probably the cheapest way for retailers to deliver products is to put the cost on the consumer. Buy online and pick-up at store still seems to be the best business model for retailers who have a physical presence. This allows them to use the distribution network they have in place, while avoiding the costs associated with the “last mile” for getting products to the consumer. I think leveling of the sales tax hurdle will be a great benefit for this model.
Efficiency through process and technological improvements are the only ways to continue to squeak out improvements in the global supply chain. Disruption caused by political/social unrest in pretty much a constant going forward. Energy costs, already rising with oil’s increases will escalate with the push for carbon credit programs (and a bevy of other reasons.) So, the good news: As overseas labor, fuel, and regulations continue to increase, the US may see more on-shoring. As a result the supply chain gets shortened as products are produced closer to the end-consumer making distribution slightly easier.