Contributing Editor Toby Gooley is a writer and editor specializing in supply chain, logistics, and material handling, and a lecturer at MIT's Center for Transportation & Logistics. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
The retail sector has been permanently disrupted by technology, and retailers of all sizes are battling to manage technology's impact on their business models. For many of them, gaining control of e-commerce, multichannel and omnichannel fulfillment, and customers' expectations of ever-faster and customized delivery is a matter of survival.
To find out how companies are responding to these and other pressures, Auburn University annually polls supply chain executives about their overall strategies as well as their experiences and plans regarding several "hot topic" areas. As in the past, this year's study was conducted by the university's Center for Supply Chain Innovation under the leadership of professor Brian Gibson, with colleagues Rafay Ishfaq, Cliff Defee, and Elizabeth Davis-Sramek. The researchers surveyed members of the Retail Industry Leaders Association, readers of Supply Chain Quarterly's sister publication, DC Velocity, and companies that collaborate with the Center for Supply Chain Innovation. To round out the picture, the research team conducted telephone interviews with supply chain executives.
This year's "State of the Retail Supply Chain" report will be released in late February at RILA's 2018 Retail Supply Chain Conference in Phoenix. DC Velocity will cover the research findings in two parts: this article, which will focus on the topics discussed in the interviews, and a summary of the survey results in our April issue.
GETTING A GRIP ON CHANGE
The researchers conducted 20 interviews with retail supply chain executives, most of whom were chief supply chain officers or senior vice presidents of supply chain. All work for medium-sized to very large retailers; all but a handful of those companies report annual revenues exceeding $1 billion, and together, they account for nearly $1 trillion in annual sales.
When asked about their overall strategy for 2018, many executives cited better management of omnichannel commerce as a top priority. Although a small "lagging" group of retailers are still rolling out basic omnichannel capabilities, companies that can be described as "leaders"—generally, the biggest brand names—are looking at refining the omnichannel strategies and practices they already have in place, such as cutting delivery times to consumers and ensuring service consistency across all channels. Those companies, the researchers say, have come a long way since their previous survey report was published. "Last year, we were still getting a lot of companies wondering how to respond to the 'Amazon effect.' Now, retail leaders have taken control of their omnichannel operations and have a game plan they're ready to execute," Defee says.
The interviews with retail supply chain executives also zeroed in on several specific areas, including urban fulfillment, relationships with third-party logistics service providers (3PLs), sustainability, and disruptive technologies. Here is the research team's take on the issues and trends the interviewees addressed.
Managing urban fulfillment. As the array of products consumers order online continues to expand, urban fulfillment has become a major concern for an increasingly wide range of retail segments. But retailers are being cautious about the delivery services they offer. Some interviewees said they would "move as fast on [urban delivery services] as our customers demand it," Gibson says. In other words, they are investing in various delivery options only when demand is sufficient and the cost of providing those services can be justified. One surprise: Although many people assume that urban delivery only matters in a few big markets like New York City and Los Angeles, respondents said they were working to meet rapidly growing demand for same-day and next-day delivery in dozens of other urban markets across the country.
Increasingly, retailers are using urban stores as fulfillment locations to accommodate their "BOPIS"—buy online, pick up in store—services. Some are also investing in small-footprint distribution centers in urban areas that offer same-day delivery for a limited assortment of stock-keeping units (SKUs). A third option mentioned by respondents is a "dark store"—a facility that's set up like a retail store but is used for assembling e-commerce orders, which are then delivered to consumers or to pickup locations. In Gibson's view, the benefit of the latter two options compared with in-store fulfillment is that it avoids disrupting store operations and offers quick access to backup inventory if a nearby store runs out.
The cost of meeting consumers' expectations is forcing retailers to rethink how they deliver orders in cities. Some are testing the use of employees to drop off packages on their way home from work. Others are setting up their own private fleets of local-delivery vehicles. But they're most likely to use for-hire services, such as Uber, Lyft, Shipt, and Instacart, because of their flexible capacity and variable cost structure, according to Gibson.
Working with logistics service providers. As retailers contend with changing business models, their relationships with 3PLs are also changing. Their strategies appear to follow two different paths. Several executives said they are seeking fewer, more strategic partnerships with 3PLs in order to reduce complexity. This trend is leading service providers to expand their portfolios in hopes of becoming a "one-stop shop" for big retail accounts, Ishfaq says. Of course, when 3PLs expand their reach and their service portfolios, their costs go up—and so do the prices they charge their customers. That, he says, could undermine one of their core value propositions: that they can handle logistics activities more cost-effectively than their clients could on their own.
That's one reason why other executives are considering a different approach: taking some warehousing and distribution activities back from 3PLs. "If a market was mature and the service demand was stable and predictable, then some would talk about doing it in-house," Ishfaq says, adding that these were all "really big players with thousands of stores who see the scale in a particular brand or product category." In addition, concerns about transportation capacity are prompting some to consider private delivery fleets or dedicated contract carriage. Still, interviewees said they would continue working with 3PLs when expansion to a new market/location or the rollout of new services was involved.
As customers put pressure on retailers to improve their service, the retailers, in turn, expect 3PLs to "up their game," Ishfaq says. But those expectations seem to be changing faster than the 3PLs can keep up with. "That has put pressure on them from both a cost and a performance-guarantee standpoint. It's a pressure cooker right now," he says. "We could see failures or tougher going."
Achieving supply chain sustainability. How much priority retailers give to sustainability, which includes environmental, health and safety compliance, and labor considerations, varies widely. Large companies that have published sustainability reports, made someone responsible for sustainability, or integrated it into their corporate culture considered it to be very important, but for others, sustainability is not a strategic priority, Davis-Sramek says. Those companies' efforts often focused on things like energy and fuel efficiency, where they can see a direct connection to cost savings. Several executives said it's critical that their sourcing organizations ensure that goods are in compliance with relevant regulations, make sure products are environmentally safe, and address problems like forced labor, but that focus didn't necessarily carry over into supply chain activities.
The interviewees have not widely considered an issue that could have a major impact on their supply chain costs in the future: the conflict between sustainability goals and consumers' escalating demands for fast, convenient service. "We asked them, if you ship one item to one customer in one box, what does that do to your ability to meet sustainability goals?" Davis-Sramek recalls. "The pretty universal response was, 'We've placed so much emphasis on fulfillment and meeting customer requests that we haven't really made that connection yet.'"
Davis-Sramek expects that at some point, retailers will come under external pressure to resolve the tension between e-commerce and sustainability. That pressure may come from nongovernmental organizations (NGOs), perhaps through a study on the impact of home delivery on the environment. Or it could come in the form of regulation, such as a carbon tax or European-style regulations on packaging waste. Nobody knows how far in the future that will happen, but Davis-Sramek expects retailers will step up when it does. "I think they'll apply the same kind of innovative thinking they used to develop omnichannel commerce," she says.
Leveraging disruptive technology. Disruptive technology is still more concept than reality for most retailers. "There's no single cutting-edge technology that everybody's focused on," says Defee. "They know it's coming, but nobody sees one they're really banking on right now." Technologies that were mentioned most frequently included artificial intelligence and machine learning, which were seen as potentially having a beneficial impact on such areas as demand forecasting, understanding customers' preferences, and identifying trends that will impact inventory plans.
Most, though, are just beginning to investigate those and other technologies, such as robotics, blockchain, and the Internet of Things. "There's a lot of interest and there's monitoring, but not a lot of money invested," Gibson says. "There's still a healthy amount of skepticism about how these technologies will play in the supply chain area." Return on investment (ROI) is another top concern; one interviewee, Defee says, called articulating an ROI to justify investment "the No. 1 challenge of disruptive technology."
Not surprisingly, then, when it comes to new technology, retailers are focusing on proven winners, such as analytics and warehouse automation. E-commerce fulfillment is driving investment in those and other technologies, but retailers are also using them to improve store operations, Gibson notes. For example, some are buying automated picking and sequencing technology for their stores because the automated systems do a much better job of picking aisle-specific pallets or cartons than a human can, thus allowing for faster on-shelf replenishment.
COMMON PRINCIPLES
During the course of the researchers' interviews, several common principles came to the fore. One was that retailers should ensure consistent service and product availability regardless of how they are interacting with customers. Another was that they must become true omnichannel organizations, leveraging inventory, technology, and distribution networks to get to a single pool of stock. Omnichannel success also requires the capacity to deliver orders wherever and whenever the customer wants them. "We're going to hit that tipping point where a retailer's capacity to make last-mile deliveries will either be game-changing or it will bog [the operation] down and get very expensive," Gibson says.
Finally, the researchers say, retailers are starting to understand that being involved in omnichannel does not mean they are obligated to be "all things to all people." Instead, many are taking advantage of advances in supply chain analytics to judge whether their scope of offerings and cost to serve specific channels and customers are justifiable. How they respond to the data will be driven by external competition and/or internal strategies, Gibson points out. Something may be costly from a supply chain standpoint, he says, but in an omnichannel world, retailers ultimately must make decisions based on overall strategic benefit.
Editor's note: An earlier version of this article originally said that the Retail Industry Leaders Association conducts the poll. While RILA members (among others) are polled, the survey itself is conducted by Auburn University's Center for Supply Chain Innovation.
Economic activity in the logistics industry expanded in January, growing at its fastest clip in more than two years, according to the latest Logistics Managers’ Index (LMI) report, released this week.
The LMI jumped nearly five points from December to a reading of 62, reflecting continued steady growth in the U.S. economy along with faster-than-expected inventory growth across the sector as retailers, wholesalers, and manufacturers attempted to manage the uncertainty of tariffs and a changing regulatory environment. The January reading represented the fastest rate of expansion since June 2022, the LMI researchers said.
An LMI reading above 50 indicates growth across warehousing and transportation markets, and a reading below 50 indicates contraction. The LMI has remained in the mid- to high 50s range for most of the past year, indicating moderate, consistent growth in logistics markets.
Inventory levels rose 8.5 points from December, driven by downstream retailers stocking up ahead of the Trump administration’s potential tariffs on imports from Mexico, Canada, and China. Those increases led to higher costs throughout the industry: inventory costs, warehousing prices, and transportation prices all expanded to readings above 70, indicating strong growth. This occurred alongside slowing growth in warehousing and transportation capacity, suggesting that prices are up due to demand rather than other factors, such as inflation, according to the LMI researchers.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
As commodities go, furniture presents its share of manufacturing and distribution challenges. For one thing, it's bulky. Second, its main components—wood and cloth—are easily damaged in transit. Third, much of it is manufactured overseas, making for some very long supply chains with all the associated risks. And finally, completed pieces can sit on the showroom floor for weeks or months, tying up inventory dollars and valuable retail space.
In other words, the furniture market is ripe for disruption. And John "Jay" Rogers wants to be the catalyst. In 2022, he cofounded a company that takes a whole new approach to furniture manufacturing—one that leverages the power of 3D printing and robotics. Rogers serves as CEO of that company, Haddy, which essentially aims to transform how furniture—and all elements of the "built environment"—are designed, manufactured, distributed, and, ultimately, recycled.
Rogers graduated from Princeton University and went to work for a medical device startup in China before moving to a hedge fund company, where he became a Chartered Financial Analyst (CFA). After that, he joined the U.S. Marine Corps, serving eight years in the infantry. Following two combat tours, he earned an MBA from the Harvard Business School and became a consultant for McKinsey & Co.
During this time, he founded Local Motors, a next-generation vehicle manufacturer that launched the world's first 3D-printed car, the Strati, in 2014. In 2021, he brought the technology to the furniture industry to launch Haddy. The father of four boys, Rogers is also a director of the RBR Foundation, a philanthropic organization focused on education and health care.
Rogers spoke recently with DC Velocity Group Editorial Director David Maloney on an episode of the "Logistics Matters" podcast.
Q: Could you tell us about Haddy and how this unique company came to be?
A: Absolutely. We have believed in the future of distributed digital manufacturing for a long time. The world has gone from being heavily globalized to one where lengthy supply chains are a liability—thanks to factors like the growing risk of terrorist attacks and the threat of tariffs. At the same time, there are more capabilities to produce things locally. Haddy is an outgrowth of those general trends.
Adoption of the technologies used in 3D printing has been decidedly uneven, although we do hear about applications like tissue bioprinting and food printing as well as the printing of trays for dental aligners. At Haddy, we saw an opportunity to take advantage of large-scale structural printing to approach the furniture and furnishings industry. The technology and software that make this possible are already here.
Q: Furniture is a very mature market. Why did you see this as a market that was ripe for disruption?
A:The furniture market has actually been disrupted many times in the last 200 years. The manufacturing of furniture for U.S. consumption originally took place in England. It then moved to Boston and from there to New Amsterdam, the Midwest, and North Carolina. Eventually, it went to Taiwan, then China, and now Vietnam, Indonesia, and Thailand. And each of those moves brought some type of disruption.
Other disruptions have been based on design. You can look at things like the advent of glue-laminated wood with Herman Miller, MillerKnoll, and the Eames [furniture design and manufacturing] movement. And you can look at changes in the way manufacturing is powered—the move from manual operations to machine-driven operations powered by steam and electricity. So the furniture industry has been continuously disrupted, sometimes by labor markets and sometimes by machines and methods.
What's happening now is that we're seeing changes in the way that labor is applied in furniture manufacturing. Furniture has traditionally been put together by human hands. But today, we have an opportunity to reassign those hands to processes that take place around the edges of furniture production. The hands are now directing robotics through programming and design; they're not actually making the furniture.
And so, we see this mature market as being one that's been continuously disrupted during the last 200 years. And this disruption now has a lot to do with changing the way that labor interacts with the making of furniture.
Q: How do your 3D printers actually create the furniture?
A:All 3D printing is not the same. The 3D printers we use are so-called "hybrid" systems. When we say hybrid, what we mean is that they're not just printers—they are holders, printers, polishers, and cutters, and they also do milling and things like that. We measure things and then print things, which is the additive portion. Then we can do subtractive and polishing work—re-measuring, moving, and printing parts again. And so, these hybrid systems are the actual makers of the furniture.
Q: What types of products are you making?
A: We've started with hardline or case goods, as they're sometimes known, for both residential and commercial use—cabinets, wall bookshelves, freestanding bookshelves, tables, rigid chairs, planters, and the like. Basically, we've been concentrating on products that don't have upholstery.
It's not that upholstery isn't necessary in furniture, as it is used in many pieces. But right now, we have found that digital furniture manufacturing becomes analog again when you have to factor in the sewing process. And so, to move quickly and fully leverage the advantages of digital manufacturing, we're sticking to the hardline groups, except for a couple of pieces that we have debuted that have 3D-printed cushions, which are super cool.
Q: Of course, 3D printers create objects in layers. What types of materials are you running through your 3D printers to create this furniture?
A: We use recycled materials, primarily polymer composites—a bio-compostable polymer or a synthetic polymer. We look for either recycled or bio-compostable [materials], which we then reinforce with fibers and fillers, and that's what makes them composites. To create the bio-compostables, we marry them with bio-fibers, such as hemp or bamboo. For synthetic materials, we marry them with things like glass or carbon fibers.
Q: Does producing goods via 3D printing allow you to customize products easily?
A: Absolutely. The real problem in the furniture and furnishings industries is that when you tool up to make something with a jig, a fixture, or a mold, you tend to be less creative because you now feel you have to make and sell a lot of that item to justify the investment.
One of the great promises of 3D printing is that it doesn't have a mold and doesn't require tooling. It exists in the digital realm before it becomes physical, and so customization is part and parcel of the process.
I would also add that people aren't necessarily looking for one-off furniture. Just because we can customize doesn't mean we're telling customers that once we've delivered a product, we break the digital mold, so to speak. We still feel that people like styles and trends created by designers, but the customization really allows enterprise clients—like businesses, retailers, and architects—to think more freely.
Customization is most useful in allowing people to "iterate" quickly. Our designers can do something digitally first without having to build a tool, which frees them to be more creative. Plus, because our material is fully recyclable, if we print something for the first time and find it doesn't work, we can just recycle it. So there's really no penalty for a failed first printing—in fact, those failures bring their own rewards in the form of lessons we can apply in future digital and physical iterations.
Q: You currently produce your furniture in an automated microfactory in Florida, with plans to set up several more. Could you talk a little about what your microfactory looks like and how you distribute the finished goods?
A: Our microfactory is a 30,000-square-foot box that mainly contains the robots that make our furniture along with shipping docks. But we don't intend for our microfactories to be storage warehouses and trans-shipment facilities like the kind you'd typically see in the furniture industry—all of the trappings of a global supply chain. Instead, a microfactory is meant to be a site where you print the product, put it on a dock, and then ship it out. So a microfactory is essentially an enabler of regional manufacturing and distribution.
Q: Do you manufacture your products on a print-to-order basis as opposed to a print-to-stock model?
A: No. We may someday get to the point where we receive an order digitally, print it, and then send it out on a truck the next day. But right now, we aren't set up to do a mini-delivery to one customer out of a microfactory.
We are an enterprise company that partners with architects, designers, builders, and retailers, who then distribute our furnishings to their customers. We are not trying to go direct-to-consumer at this stage. It's not the way a microfactory is set up to distribute goods.
Q: You've mentioned your company's use of recycled materials. Could you talk a little bit about other ways you're looking to reduce waste and help support a circular economy?
A: Yes. Sustainability and a circular economy are really something that you have to plan for. In our case, our plans call for moving toward a distributed digital manufacturing model, where we establish microfactories in various regions around the world to serve customers within a 10-hour driving radius of the factory. That is a pretty large area, so we could cover the United States with just four or five microfactories.
That also means that we can credibly build our recycling network as part of our microfactory setup. As I mentioned, we use recycled polymer stock in our production, so we're keeping that material out of a landfill. And then we tell our enterprise customers that while the furniture they're buying is extremely durable, when they're ready to run a special and offer customers a credit for turning in their used furniture, we'll buy back the material. Buying back that material actually reduces our costs because it's already been composited and created and recaptured. So our microfactory network is well designed for circularity in concert with our enterprise customers.
Generative AI (GenAI) is being deployed by 72% of supply chain organizations, but most are experiencing just middling results for productivity and ROI, according to a survey by Gartner, Inc.
That’s because productivity gains from the use of GenAI for individual, desk-based workers are not translating to greater team-level productivity. Additionally, the deployment of GenAI tools is increasing anxiety among many employees, providing a dampening effect on their productivity, Gartner found.
To solve those problems, chief supply chain officers (CSCOs) deploying GenAI need to shift from a sole focus on efficiency to a strategy that incorporates full organizational productivity. This strategy must better incorporate frontline workers, assuage growing employee anxieties from the use of GenAI tools, and focus on use-cases that promote creativity and innovation, rather than only on saving time.
"Early GenAI deployments within supply chain reveal a productivity paradox," Sam Berndt, Senior Director in Gartner’s Supply Chain practice, said in the report. "While its use has enhanced individual productivity for desk-based roles, these gains are not cascading through the rest of the function and are actually making the overall working environment worse for many employees. CSCOs need to retool their deployment strategies to address these negative outcomes.”
As part of the research, Gartner surveyed 265 global respondents in August 2024 to assess the impact of GenAI in supply chain organizations. In addition to the survey, Gartner conducted 75 qualitative interviews with supply chain leaders to gain deeper insights into the deployment and impact of GenAI on productivity, ROI, and employee experience, focusing on both desk-based and frontline workers.
Gartner’s data showed an increase in productivity from GenAI for desk-based workers, with GenAI tools saving 4.11 hours of time weekly for these employees. The time saved also correlated to increased output and higher quality work. However, these gains decreased when assessing team-level productivity. The amount of time saved declined to 1.5 hours per team member weekly, and there was no correlation to either improved output or higher quality of work.
Additional negative organizational impacts of GenAI deployments include:
Frontline workers have failed to make similar productivity gains as their desk-based counterparts, despite recording a similar amount of time savings from the use of GenAI tools.
Employees report higher levels of anxiety as they are exposed to a growing number of GenAI tools at work, with the average supply chain employee now utilizing 3.6 GenAI tools on average.
Higher anxiety among employees correlates to lower levels of overall productivity.
“In their pursuit of efficiency and time savings, CSCOs may be inadvertently creating a productivity ‘doom loop,’ whereby they continuously pilot new GenAI tools, increasing employee anxiety, which leads to lower levels of productivity,” said Berndt. “Rather than introducing even more GenAI tools into the work environment, CSCOs need to reexamine their overall strategy.”
According to Gartner, three ways to better boost organizational productivity through GenAI are: find creativity-based GenAI use cases to unlock benefits beyond mere time savings; train employees how to make use of the time they are saving from the use GenAI tools; and shift the focus from measuring automation to measuring innovation.
According to Arvato, it made the move in order to better serve the U.S. e-commerce sector, which has experienced high growth rates in recent years and is expected to grow year-on-year by 5% within the next five years.
The two acquisitions follow Arvato’s purchase three months ago of ATC Computer Transport & Logistics, an Irish firm that specializes in high-security transport and technical services in the data center industry. Following the latest deals, Arvato will have a total U.S. network of 16 warehouses with about seven million square feet of space.
Terms of the deal were not disclosed.
Carbel is a Florida-based 3PL with a strong focus on fashion and retail. It offers custom warehousing, distribution, storage, and transportation services, operating out of six facilities in the U.S., with a footprint of 1.6 million square feet of warehouse space in Florida (2), Pennsylvania (2), California, and New York.
Florida-based United Customs Services offers import and export solutions, specializing in remote location filing across the U.S., customs clearance, and trade compliance. CTPAT-certified since 2007, United Customs Services says it is known for simplifying global trade processes that help streamline operations for clients in international markets.
“With deep expertise in retail and apparel logistics services, Carbel and United Customs Services are the perfect partners to strengthen our ability to provide even more tailored solutions to our clients. Our combined knowledge and our joint commitment to excellence will drive our growth within the US and open new opportunities,” Arvato CEO Frank Schirrmeister said in a release.
And many of them will have a budget to do it, since 51% of supply chain professionals with existing innovation budgets saw an increase earmarked for 2025, suggesting an even greater emphasis on investing in new technologies to meet rising demand, Kenco said in its “2025 Supply Chain Innovation” survey.
One of the biggest targets for innovation spending will artificial intelligence, as supply chain leaders look to use AI to automate time-consuming tasks. The survey showed that 41% are making AI a key part of their innovation strategy, with a third already leveraging it for data visibility, 29% for quality control, and 26% for labor optimization.
Still, lingering concerns around how to effectively and securely implement AI are leading some companies to sidestep the technology altogether. More than a third – 35% – said they’re largely prevented from using AI because of company policy, leaving an opportunity to streamline operations on the table.
“Avoiding AI entirely is no longer an option. Implementing it strategically can give supply chain-focused companies a serious competitive advantage,” Kristi Montgomery, Vice President, Innovation, Research & Development at Kenco, said in a release. “Now’s the time for organizations to explore and experiment with the tech, especially for automating data-heavy operations such as demand planning, shipping, and receiving to optimize your operations and unlock true efficiency.”
Among the survey’s other top findings:
there was essentially three-way tie for which physical automation tools professionals are looking to adopt in the coming year: robotics (43%), sensors and automatic identification (40%), and 3D printing (40%).
professionals tend to select a proven developer for providing supply chain innovation, but many also pick start-ups. Forty-five percent said they work with a mix of new and established developers, compared to 39% who work with established technologies only.
there’s room to grow in partnering with 3PLs for innovation: only 13% said their 3PL identified a need for innovation, and just 8% partnered with a 3PL to bring a technology to life.