Retail Leader Industry Association (RILA) and Auburn University have kicked off the inaugural study of retail supply chain management issues. Our initial work has involved interviews with top supply chain executives from more than two dozen U.S. retailers. The discussions focused on key trends and challenges, strategic priorities, and investment plans.
The most pressing concern among supply chain executives is the lack of revenue growth. When retail sales lag, more pressure is placed upon the supply chain to keep costs in check without letting service suffer.
“We need to optimize supply chain activities to the degree that we maintain a very low cost as a percentage of sales,” notes one executive. Other interviewees readily agree with this assessment.
A related challenge is demand variability. Changing tastes, rapid technology change, and tightening purse strings are making it more difficult to accurately forecast inventory requirements. Common strategic responses among the interviewees include: combining smaller initial orders with faster replenishment capabilities, improving cross-chain visibility, and adopting a holistic inventory management approach.
“Managing a product’s lifecycle is critical,” recommends an executive. “We can’t focus only on getting product into the store. We also have to manage obsolescence by purging inventory before its value is lost.”Finally, the executives are closely watching fuel costs. Recent diesel price declines have not created a false sense of security. Supply chain executives are targeting greater equipment utilization, pursuing lower fuel consumption, and revamping networks that were designed during the heyday of cheap transportation.
There are no sacred cows in this environment according to one leader: “The cost of fuel is driving us toward a different supply chain model. We are talking about some pretty dramatic changes that will impact store delivery frequency.” Another executive adds: “We’re letting stores handle some DC responsibilities as long as it creates transportation efficiencies.”
Clearly, these are challenging times in the retail sector, but there is a strong sense of opportunity among supply chain leaders. It can be best summed up by the executive who suggests: “In an environment like this, we get a brighter spotlight on the supply chain. It’s an opportunity for us to be creative and make some moves that, traditionally, people won’t consider.”
Phase two of the study is slated to begin in the coming days. A brief survey will be distributed to RILA member organizations and will also be available on the project website www.retail-scm.com. For additional research study information, contact Brian Gibson, Professor of SCM, Auburn University at (334) 844-2460.