The Future of the Retail Distribution Industry
With so many shopping malls turning into ghost towns, brick and mortar retailers were already in a precarious position, even before the pandemic. The Amazon effect already in progress ramped up in 2020. COVID-19 affected retail distribution in several ways: shelter-in-place directives kept people at home, retail shelves wiped out from panic buying, and the demand for health-related products triggered online shopping on a massive scale.
Does this shift mean extinction for retail stores? Not exactly. There are still aspects of the in-person shopping experience that have deep roots in consumerism. Brick-and-mortar stores are still the place to stock up on groceries, pick up that last-minute gift, and a convenient way to make a return. Plus, with the USPS experiencing substantial delivery delays, you get products much sooner by walking into a store.
But with overhead expenses staying the same while some stores see revenue go down, it’s time to reevaluate retail’s role in the world of commerce. Retailing distribution will carry on, but it will transform as it evolves.
Understanding the Changing Shift in Retail Logistics
According to McKinsey & Company’s report on The Future of Retail Supply Chains, “Meeting the multichannel consumer’s increasing expectations for speed and convenience is forcing many retailers to revamp obsolete supply chains designed for a single-channel world.”
In other words, if you ask consumers if they want to shop online or in-store, the answer is both. Retailers will need to find a way to court customers by marrying both worlds in a manner that is tailored to modern needs.
With a move to a multi-channel distribution strategy, there will be a plethora of options for fulfilling e-commerce orders. This involves a retail logistics protocol based on order fulfillment optimization. This includes specific rules for customer service, inventory availability, revenue tracking, and markdown mitigation.
As time goes by, the practice of “ship and forget” will phase out. Emerging in its place will be a more dynamic distribution plan that distributes products among channels based on sell-through rate metrics. Demand determines actions that maximize profit and reduce the surplus.
A more flexible structure for inventory management means retailers can do a trial run of a product to feel out the demand for it. If it sells well, the retail distribution will meet that demand sending more units.
What other trends are we seeing roll out post-2020? We’ll discuss each of these new frontiers of retail distribution in depth.
1. Rapid Digital Acceleration and Adoption
Leveraging technology is a facet of agility. The typical technology deck is stacked with mobile, AI, cloud, advanced analytics, robotic process automation, and the internet of things. When COVID-19 hit, that deck was shuffled as mobile, AI, and the cloud took the lead with enhanced utilization.
IBM discovered that during the peak of COVID-19, the organizations that best integrated available technology into their operations outperformed others by 6 percentage points on average. This may not seem like a large amount, but it proves that technology is an indispensable part of sustainability during a crisis.
Some retail distributors have not yet replaced their old and outdated technology with new versions that solve modern problems. At the same time, these new technologies have transformed how consumers purchase products, especially when it comes to mobile technology. Many retailers have turned to distributed order management (DOM), warehouse management software, robots, and blockchain for their supply chains to run more effectively and efficiently.
2. Smarter Management Systems
The distribution industry is riddled with complexity as it juggles a high number of SKUs, customers, transactions, suppliers, pricing, and rebate structures. The supply chain is being revolutionized with better and smarter systems, including that of the retail distribution industry. Such upgrades involve Distributed Order Management (DOM) and Warehouse Management Systems (WMS) or Warehouse Execution Systems (WES).
Distributed order management (DOM) optimizes the systems and processes surrounding the sales order lifecycle so that the delivery of orders is efficient and on time for customers. Traditionally, the DOM was used to fulfill orders between one or more distribution centers (DCs), but these systems are now integrating with point-of-sale (POS) systems in-store.
As DOM models evolve, they need increased visibility and collaboration inclusive of the entire network to move products to where the demand is. This involves inventory rebalancing, agile distribution of inventory, dynamic orchestration, supplier cooperation, and inbound freight optimization.
Warehouse management and execution systems are a fundamental part of the retail supply chain. Facilities utilize a WMS to control the movement and storage of materials. Within the facility, WES manages the inventory records and materials handling equipment.
In the past, WMS hasn’t been oriented to manage mixed inventory, but with innovation, these platforms will begin to see a dynamic repositioning of inventory and better visibility of inventory availability.
WES serves as a subsystem that integrates distribution technology. The formation of a single control system combines facility assets with end-to-end visibility. As a result, retail companies can prioritize tasks and optimize those tasks on demand.
A more agile retail distribution system will leverage DOM and WMS systems so that materials have the expedited distribution that accomplishes a more timely fulfillment of consumer orders.
3. Rebuilding Chain Resiliency
Once the supply chain began to feel the full effects of the 2020 crisis, retail distribution weaknesses were uncovered. Retailers who were continuously serving a certain volume of customers could not meet the spike in consumer demand.
Some retailers responded to this crisis by questioning if the imported stock was still the best option. While some could not disentangle themselves from globalization, others looked to stateside sources for a more predictable delivery of needed goods.
Deloitte speculates that 80% of retail distribution supply chain organizations will be investing in operations in 2021. They predict that these investments will be spread among last-mile delivery, curbside pickup, warehouse management, and procurement.
Vendors have an opportunity to pitch in to make the supply chain more robust. This includes direct delivery of drop-shipments, distribution of more pre-packs, and shelf-ready products that usually come from a retailer’s distribution center. Further, logistics partners will share the cost of last-mile deliveries to meet the needs of special-case customers (as with shipment to remote areas).
Merchandise shortages due to transit congestion and consumer panic buying were the thing of many internet memes. Despite the humor we drew from it, this did rattle consumer confidence in the supply chain. To ensure American stores don’t run out of toilet paper again, retailers must consider how each link of the supply chain can be strengthened to keep pace with demand. The keywords for retail distribution in 2021 are agility and sustainability.
4. Improving Chain Flexibility
The modern retail distribution entities will find a balance of strategy, changing customer needs, and the market-shaping actions of their competitors. At the same time, they should steer clear of any enticement to reduce the scope of needed enhancements in light of current operations.
Stakeholders must take a holistic approach that considers all aspects of the supply chain. Flexibility and adaptability must be ingrained into the culture of your business.
Consumers want to have their cake and eat it too, meaning they insist on having the convenience of ordering online and having a local store to shop in. How does retail distribution reconcile this? Curbside pickup and online order pickup have turned some share of a store space into mini-distribution centers. This hybrid allows retail operations to be optimized and agile.
A strong retail industry will be nimble in response to shifts in demand, working with reliable suppliers, and closely following analyses of real-time data (to make the best inventory decisions). Being agile positions retailers to have more secure resources from suppliers, and to continuously serve customers no matter what challenges emerge.
5. Hiring the Right Talent
Despite the rumors that automation will eliminate jobs, humans are still needed to serve people in the world of retail. With a broadening customer base, a diverse workforce is necessary to meet the growing demand on the supply chain.
As the need for cashiers and baggers decreases with customer-operated POS, the need for stockroom staff and customer service has increased for retailers. Rather than cut the labor force in the retail industry, it will become more streamlined. Human intelligence and interaction is still a valuable asset for retail operations.
In the future, workers will be cross-trained among customer service, merchandising, and fulfillment. Talent will be defined by who can toggle between all these necessary roles. Grocery stores have bolstered their order picking staff, and many other retailer chains have followed suit.
Final Thoughts on the Outlook of Retail Distribution
When much of the world was sheltering in place last year, the Amazon effect intensified as we realized how many needs can be met with online shopping. Retailers now have to rethink brick-and-mortar store layouts and what to do with those spaces that have less foot traffic.
One idea is to make in-person shopping more about hands-on experiences with the brand than filling shelves with inventory. Customers would interact with company representatives who provide demonstrations. Humans are still needed on-site to accommodate the new in-store environment.
Whether you need retail distribution staff for logistics, support for fulfilling online orders, or general retail operations help, Aida provides on-demand staffing for workforce optimization. You’ll have plenty of vetted contract labor workers at your fingertips with our staffing portal that also features reviews.
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