Near term supply chain trends in the retail sector

e-commerce acceleration

The retail sector underwent a rapid transformation in 2020, with some economies shifting approximately half of their retailing spend onto e-retail. The sector’s transformation has been driven by the Coronavirus pandemic with the most noticeable change being the shrinking importance of physical stores, however, this is difficult to quantify due to the speed in which these changes have unfolded.

Retailers marketing strategies have been transforming for quite some time, with retailers and manufacturers now capable of reaching a wider, more global audience which could not be achieved through conventional retail channels alone. The possibility exists to redefine what a retailer or a manufacturer is. However, due to the speed of change, it is likely that many manufacturers and retailers have not yet explored these opportunities with the like of Amazon currently dominating e-retail activity.

This change will have several implications for the sector’s logistics industry. Trends come and go and as fast fashion has proven to be unsustainable, the traditional model of ‘trucks & sheds’ now also appears to be old fashioned. Going forward, large, highly capitalised networks of fulfilment hubs and cross-docks with high-levels of automation and even higher levels of focus on data are the key infrastructure that delivers e-retail. Companies will therefore move towards reversing the trend of outsourcing logistics and focus on creating in-house logistics solutions.

Transport has also changed. The last mile element of the supply chain is a major constraint of e-retailing and unfortunately is one of the most important sectors in logistics. Even e-commerce giants such as Amazon have struggled to improve productivity through automation and remains an area which is, to a large extent, outsourced to LSPs with strong technology bases.  

These changes also have implications for inventory policies. Inventory is arguably a hidden defining characteristic of retail logistics and retailing in general. Concepts such as ‘sales’ or the size and locations of shops are largely determined by retail policy. This has a direct impact on logistics with, for example, the container shipping sector seasonality driven by it.

Consumer demand is unlikely to change its patterns, however, e-retailers’ ability to respond to demand as a result of their superior information management at the tactical level requires more precise inventory management. Order-to-delivery cycles can be compressed, and inventory positioned and priced more effectively.

In the longer term the integration of production and retail may improve due to advancements in technology. Although initiatives such as Blockchain have yet to have a significant impact, the improvement of co-ordination on the supply chain offers opportunities for co-ordinating schedules, capacity and thus efficiency for both fixed production assets and transport as well as inventory.

Finally, it should not be underestimated how the transformation of retailing can impact trading patterns. Due to logistics models preferred by the likes of Amazon, e-retailing seems to be national rather than international. Despite this, there is potential for retailers with relatively modest operations to expand their scope and serve customers on a global level. Large providers such as DHL Express already include cross-border e-commerce as a key aspect of its marketing strategy, it is simply not as apparent as its national operations. However, it is evident that there is potential for e-retail to drive global trade further in the future.

Author: Transport Intelligence

Source: Transport Intelligence, January 14, 2021

This brief has been taken from a larger paper, ‘An Industry in Transformation: Near Term Supply Chain Trends in 2021’ written by Ti Insight’s Chief Analyst, Thomas Cullen. The paper outlines five fundamental shifts in logistics that will drive the transformation of the global logistics and supply chain industry in 2021 and beyond:

  • China’s changing role in global supply chains
  • Automotive supply chains go electric
  • Consumer electronics leave China
  • Retail logistics transforms
  • Global trade restructures.

The paper is available exclusively to GSCi subscribers. Each week, Ti’s team of senior analysts and industry experts deliver analysis covering the latest logistics and supply chain trends exclusively to users of GSCi.

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