The COVID-19 pandemic has redefined the retail industry by placing e-commerce at the center of retailers’ strategies. While e-commerce had been on a steady growth pattern prior to the pandemic, it accelerated in 2020 as consumers stayed home and opted to buy online versus venturing into stores. As a result, e-commerce retail sales increased 32.4% year-over-year in 2020, according to the US Census Bureau. As the number of COVID-19 vaccinations increases and the economy heals, the e-commerce acceleration is continuing this year with Q1 e-commerce sales up 39% year-over-year.
Welcome to the “new normal.” Indeed, Brie Carere, FedEx’s Chief Marketing and Communications Officer noted on the company’s fiscal Q4 earnings call on June 24 that the US domestic parcel market is expected to surpass 107 million packages a day in 2022, with e-commerce contributing 88% of the total US market growth.
As e-commerce grows, the last mile has become even more important. Consumers want their purchases fast and they want options as to how they receive their purchases – curbside pickup, Buy Online Pick Up in Store (BOPIS), parcel lockers, third-party pickup locations, or to the home.
However, to meet the need for speed and the growing number of last-mile options, the last mile must be tightly woven with the middle mile. The middle mile is typically described as the part of the supply chain in which goods are transported from port or airport to a warehouse or fulfillment facility. A slip up in the middle mile can result in a delay in the last mile.
Positioning inventory in the right warehouses, fulfillment facilities, and stores are important. Retailers are fulfilling e-commerce orders in different ways and, as such, they need to utilize their data to understand how much and what types of inventories are needed for each of their facilities.
In addition, quick and accurate automated solutions within facilities are also a must. Linking inventory systems, automation, and fulfillment processes to a retailer’s website and adding last-mile delivery options has proved extremely beneficial to retailers as they attempt to control product flow.
Understanding the Information
Not only is controlling the flow of products important, controlling the flow of information is also critical. Among the benefits to the customer (according to Amazon, who is the best in data/information management) is the ability to provide more precise estimates of delivery.
Gathering information throughout the supply chain process is helping retailers offer more precise delivery times and more delivery options; allowing consumers to view inventory availability in real time on retailers’ websites; helping retailers position inventory closer to consumers that are most likely to purchase a particular item; and much more. The added benefit of staging the appropriate inventory closer to consumer demand is that it allows the customer experience to be enhanced with the shortened deliveries.
Through the use of cloud-based technologies, retailers are able to link store to e-commerce and implement supply chain strategies that connect the middle mile and last mile.
An important benefit of cloud computing is that it enables real-time access to all operational and financial data across businesses, improving effectiveness, reducing expenses, and enabling better business decisions. The ease in scalability, pricing, and security levels the playing field for smaller retailers. As such, when COVID-19 spread throughout the world in 2020, retailers turned to these solutions to ensure business would continue.
According to technology research firm, Gartner, spending on public cloud services is expected to grow 18.4% this year, to a total of $304.9 billion, up from $257.5 billion in 2020. The proportion of total enterprise IT spending that goes on cloud computing is also expected to grow quickly, from 9.1% in 2020 to 14.2% by 2024.
The retail industry is highly competitive, and retailers are under intense pressure to operate more efficiently. As a result, they are using a plethora of metrics to optimize every aspect of their operations.
Many retailers like Walmart, Costco, and Kroger have specific on-time performance metrics for suppliers mandating agreed-upon quantity needs that need to be received on time or the supplier will face possible penalties or SKU segmentation.
Vendor requirements are an important enabler to reduce supply chain days from the manufacturer to the customer. Investments in warehouse, compliance software, and transportation management technologies are needed to proactively manage/optimize each supply chain component.
Establishing key performance indicators as delivery times, inventory replenishment to sales, percentage of returns, fill rates, transportation costs, and more allows retailers to identify pain points quickly and optimize where needed when using cloud-based technologies.
Benchmarking of key performance indicators is also be done to determine success and identify areas that may need improvement. Benchmarking allows a company to compare its own products, operations, and processes to other companies as well as measuring vs. their own past performance.
Companies that are interested in benchmarking must identify what they want to measure and then research, collect, and analyze market data to determine where the company is positioned. Lastly, each company should ensure they have a definite action plan and monitor the company’s progress on a weekly/monthly basis.
E-commerce is expected to continue its growth this year. According to market research firm, eMarketer, retail e-commerce sales in the US will increase by 13.7% to $908.73 billion, lower than last year's 18% to $709.78 billion surge, but still exceeding pre-pandemic estimates of 12.8%. And according to McKinsey and the Retail Industry Leaders Association, consumers will choose retailers based on ease and richness of end-to-end experience. “Retailers must understand the role of digital shifts on the customer journey, upgrade e-commerce capabilities, and rethink the network as the role of the store blurs.”
As the role of the store blurs, the supply chain that powers this omnichannel strategy must be in sync between the middle mile and the last mile to succeed.
Jay Kent is Managing Director, SLB Performance. Cathy Morrow Roberson is Founder, Logistics Trends & Insights.
This article originally appeared in the July/August 2021 issue of PARCEL.