2019 Retail Tech Trends: supply chain

As another festive season falls behind us, January sales commence and a host of unwanted gifts and are returned, it’s no surprise that retailers and 3PLs have a mammoth task on their hands. Beyond catering for a rapidly extending peak trading period, now is already the time that stringent planning is in place to ensure that they can be as prepared as possible for Christmas 2019 in just short of 12 months time.

The rise of eCommerce is no new phenomenon, but it continues to shape consumer behaviour, expectations and retail distribution models. Convenience has become one of the leading driver of customer experience, with retailers under pressure to meet the ever more demanding expectations of consumers. The stakes are even higher over the festive period as without a robust distribution network in place, retailers risk brand damage through disappointing customers by failing to deliver essential Christmas items in time for the big day. This can present severe trust ramifications when it comes to brand reputation and repeat purchase potential.

During peak trading periods, warehouses and distribution centres across the UK are operating at maximum capacity. Data from Loqate group highlights that on Black Friday 2017, UK online sales were already up 78% on the previous year by 8am. Large retailers were seeing hourly orders surpassing 700 per minute, with distribution centres packing on average 10,000 units per hour. In particularly busy hours, volumes were hitting 18,000, demonstrating the enormous pressure on retailers’ ability to improve turn-around times whilst still maintaining margins. They are now having to adapt to a more competitive, sophisticated and dynamic economic environment, with supply chain strategy playing an essential role in meeting those demands. Through realising the benefits of optimising supply chain management systems, it is possible to sustain processes that get products from the point of origin to consumption (and back again) more efficiently and economically.  

However, the challenge isn’t over once the goods have reached the consumer. Recognition is growing that a convenient and transparent returns process is an influential facet of competitive differentiation. However, it comes with significant cost. John Lewis recently shared that a single returned item can pass through up to seven pairs of hands before it goes back into circulation. Notably, research shows that in 2016, returns cost retailers £20 billion.

Consequently, improving the returns process is crucial to customer experience and maintaining brand affinity. Retailers are focused on future-proofing the reverse logistics structure to maintain margins together with customer loyalty. Despite added pressure on costs, increased interaction with the consumer presents an opportunity. These processes themselves are generating rafts of data, enabling retailers to make more informed decisions when it comes to storage strategy, warehouse design and location requirements.  

The ability to collect, manage and analyse data is a key element of building out a resilient, omni-channel fulfilment network that satisfies the needs of consumers, whilst keeping costs down and accelerating order processing. Many retailers are investing in increasingly more sophisticated digital systems to improve their inventory management, helping them to better understand and predict stock patterns across their distribution network to avoid costly over or under stocking. It also enables them to determine preferential inventory locations so that goods can reach the end consumer in a more timely and cost-effective manner. Capgemini stated that retailers could save 6.9% of logistics costs by using AI to optimise their core functions; from network management, to visual-aided picking, to reverse supply chain management, and route optimisation. The proportion of retailers deploying AI has risen from 4% to 28% in the last two years, highlighting a step change in the prioritisation of logistics in enhancing the customer journey.

Data aside, location is also crucial to effective inventory management, network optimisation and reverse logistics. The largest proportion of the supply chain cost can be attributed to transport and labour. It is therefore critical when identifying network locations to consider their proximity to transport links, labour supply, as well as connectivity to consumers and suppliers. The change in consumer habits is driving a change in the shape of warehousing demand in the UK. Supply chain managers and property advisors are therefore collaborating even more closely to ensure that warehouse location and effective space optimisation can help to support the target of having inventory in the right place. They are also looking to seek more flexible ways of using this space, so that peak capacities can be met without excess overheads for the rest of the year. The market is seeing an introduction of innovative ways of sharing warehouse space and landlords are considering flexible lease arrangements. This is an integral level of collaboration as retailers look to prepare for 2019’s peak trading periods, as the ability to be more agile with space and distribution will unlock value in the supply chain, foster efficiency and ensure resilience in a turbulent environment.