Four Supply Chain Megatrends Impacting Businesses Today

by | 07 May 2018

Dr. Ted Stank, executive director of University of Tennessee-Knoxville’s Global Supply Chain Institute, recently facilitated a panel on supply chain megatrends. The biannual forum draws the top supply chain leaders from companies such as IBM, Cummins, Kimberly-Clark, Procter & Gamble and FedEx.

Speaking on a panel with supply chain executives from Kimberly Clark and FedEx, we focused on four of the most talked about, high-level megatrends impacting supply chain right now:

  • Financial impact of improved supply chain performance
  • E-commerce and omnichannel impact on supply chain networks and operations
  • Automation, robotics and technology
  • Talent and labor shortages

Financial impact of improved supply chain performance

It is well known improved supply chain performance can impact a company’s financial performance by hundreds of millions – or even billions – of dollars.

The three primary ways in which financial performance is increased is via:

  • Increased revenue through improved in-stock condition/service levels achieved through inventory accuracy, SKU segmentation, and forecasting accuracy
  • Improved cash flow through enhancements in inventory productivity/turns
  • Bottom-line contributions through cost reductions tied to automation/operational optimization

Specifically, network optimization and reconfiguration of a company’s distribution and transportation network can drive improved service and revenue while helping to reduce the effect of demand variability.

E-Commerce and omnichannel impact on supply chain networks and operations

Developers are trending toward infill development – the redevelopment of already largely-developed sites – and last mile locations. In some major metro markets, 50% of new industrial is infill related, resulting in a greater number of smaller footprint fulfillment and distribution industrial nodes. In the Chicago area, infill accounts for 17 of the 30 projects currently under construction. This is the greatest number of active infill development projects being developed at one time during a given cycle. Also in Chicago, the average project size has decreased about 23% for projects under construction and planned buildings expected to begin construction during the next six months.

Some of the other key takeaways included:

  • 20% of all new leasing activity is e-commerce related, up from 5% five years ago
  • Amazon has more than 350 locations covering 140 million square feet
  • Retail’s increasing conversion to omnichannel fulfillment nodes. Sam’s Club, for instance, shifted 12 of its 63 recently closed locations to omnichannel fulfillment sites
  • Customers expect fast delivery. Two-day shipping coverage from fulfillment point to customer is table stakes today, and next-day and same-day delivery are ramping up.
  • Increased automation investments from third-party logistics (3PL) for omnichannel fulfillment
  • USPS today ships 40% of Amazon’s packages, and they’re quickly moving towards 60%. Many others are following suit.

Automation, robotics and technology

As the labor market becomes tighter and customer order volumes shift to more labor-intensive e-commerce fulfillment, companies are more aggressively evaluating and testing different levels of automation, robotics and technology.

Some of the major trends and decision criteria companies can use to evaluate the right automation solution for their business include:

  • An increased investment in autonomous robotics, especially within 3PLs
  • Heightened focus on picking arms and hands that can select individual pieces of product for specific customer order
  • Shift towards hybrid robotics such as in Tompkins Robotics t-Sort. t-Sort delivers the benefits of a tilt-tray sorter with the autonomy of a Kiva-like fulfillment system.
  • Automation that is drastically changing the requirements of industrial space – Autostore and inVia are two examples.

Talent and labor shortages

Hiring and retention remain an issue, which has been accelerated by the growth of omnichannel/e-commerce fulfillment – driven in large part by Amazon. To combat this, companies are increasingly incorporating automation and robotics. In the case of Amazon, automation helped each type of worker – human and robot – to focus on what they do best, allowing the company to grow both its robot and human workforce by 50% in 2016.

Secondly, some companies have begun to employ people with significant cognitive/physical disabilities who have proven to work at the same pay and performance standards yet have better attendance, retention and safety records as compared to typically-abled populations. In addition, the additional win with this employment model – as evidenced by the thousands of people with disabilities employed in distribution centers at Walgreens, Meijer, Sephora, Clark’s and more – is the pronounced improvement in culture/engagement scores in facilities that employ people with disabilities. After nearly a decade of experience with this employment model, Walgreens has realized a 12% penetration rate across their distribution centers of people with significant cognitive disabilities. Walgreens is moving to a goal of 20% by 2020, as recently outlined by their chief supply chain officer, Reuben Slone.

Todd Steffen is a Chicago-based Vice President of Supply Chain & Logistics. Todd partners with Colliers’ advisors to provide supply chain consulting services ranging from strategic capability assessments and development to operational guidance on inventory management, transportation, procurement, and omnichannel distribution network optimization. Todd brings more than 25 years of large-scale supply chain expertise and worked for leading companies such as EY and Walgreens.

Read more in: