The state of the retail supply chain: The more things change …

Can research data on the state of the retail supply chain that was gathered before the pandemic still have relevance today?

This was the knotty problem facing Auburn University Professor Brian Gibson as he prepared to publish the 2020 State of Retail Supply Chain Report, which was produced by Auburn University’s Center for Supply Chain Innovation in collaboration with the Retail Industry Leaders Association (RILA) and DC Velocity. To prepare the report, Gibson and his colleagues Rafay Ishfaq and Beth Davis-Sramek, also professors of supply chain management at Auburn, had interviewed 52 senior supply chain executives between February and November 2019 and conducted an online survey between August and December of that year.

Serendipitously, the answer turned out to be yes. The three key priorities identified in this year’s study—fulfillment automation, human capital “fortification,” and supply chain digitization—have all proved to be as crucial to navigating the pandemic and its aftermath as they were to navigating a world of changing shopping habits, increasing trade tensions, and historically low unemployment rates, he says.

“The topics we looked at are ones that people are still talking about, and they weren’t things that changed so dramatically as a result of the pandemic,” Gibson says. “For example, we didn’t ask questions about strategic sourcing and where companies were planning to buy their products from. In that case, people’s answers might have changed between the fall and early winter, and now. Nor did we ask about inventory, where companies may be rethinking their lean inventory philosophies.”

But with automation, recruitment and retention, and digitization, Gibson believes it’s unlikely that respondents’ interest has cooled. “If anything, the pandemic might have ramped up interest in these issues and created a need to respond to them even sooner,” he says.

CHURN, CHURN, CHURN

Of the three priorities identified in this year’s study, the one most likely to have been affected by the pandemic is “fortifying human capital management.” But here, the story hasn’t always played out in predictable ways. Back in 2019, facing a historically low U.S. unemployment rate of 3.5%, retailers struggled to find enough people to staff their fulfillment operations. In fact, survey respondents indicated at the time that they expected hourly-associate staffing to be their biggest challenge for the next three years.

Then the pandemic hit, shuttering operations and driving the unemployment rate to 14.7% in April. Yet the retail sector—especially the supply chain side—did not experience the widespread layoffs seen in the travel, hospitality, and manufacturing industries, according to Gibson.

“Supply chain people—and particularly hourly associates—are now seen as essential labor,” he says. “Retailers haven’t laid off distribution associates; instead, they are hiring more and giving them bonuses and incentive pay—some are even calling it “hero pay”—to keep working under challenging conditions.”

That brings up the question of retention. Holding onto workers has long been a problem for the industry—largely because of the physical nature of the work, its repetitiveness, and the need to work nights and weekends. Before the pandemic, 84% of survey respondents said retaining talent was a major challenge for their organization. Gibson believes this challenge will persist despite today’s record-high unemployment. While retailers will find no shortage of candidates to work in their DCs, he says, there are no guarantees these employees will stay once their old jobs come back on line. “Churn is still going to be a challenge,” he predicts.

ROBOTS TO THE RESCUE

In 2019, the explosion in e-commerce orders and the associated pressure for speedy fulfillment were already driving retailers to invest in automated fulfillment systems. Then came the economic shutdown, which shifted even more commerce online and, thus, intensified the need for automation, according to Gibson. “Automation is absolutely critical right now,” he says. “So much so that retailers who didn’t jump in earlier are going to wish they had, as it makes responding to today’s challenges a little easier.”

Even before the pandemic, technologies that once seemed like science fiction, such as robots and machine learning, were being embraced by retail supply chain operations. One hundred percent of the 2020 survey respondents said they believed robotics would change the way their supply chain operated, while 95% said the same of machine learning.

Despite their evident interest, those respondents also indicated they were not as far along in implementing these technologies as they would like. Three-fourths of the respondents did not think they were ahead of the competition in adopting robotics, and 90% felt the same way about machine learning.

With both technologies, the biggest obstacle to adoption was the high cost of implementation, according to the survey respondents. That’s one challenge that is not going away anytime soon. Gibson believes the economic slowdown will prevent many companies from moving forward with automation projects as rapidly as they’d like. However, the report warned that delaying implementation for a more financially feasible time is “a recipe for falling further behind the competition.”

THE NEED TO CONNECT

Automated warehouse and DC systems are not the only technologies retailers consider necessary to their success over the next three years. They also see digitization as a key to their future, according to the report. In the case of supply chain operations, digitization refers to the deployment of digital technologies across the supply chain to replace old legacy IT (information technology) systems and manual labor. It typically involves creating a single central data repository, real-time reporting, operations and business process automation, and advanced analytics.

Gibson believes the pandemic has highlighted the importance of supply chain digitization. “With all of us working from home, the lack of connectivity only got magnified,” he says.

But he also notes that during his conversations with executives, he was struck by how many companies are still struggling to comprehend what “digitization” means. According to the survey, only 16% have started deploying a digitization strategy. Another 26% are in the planning stages. The remaining 58% of respondents are either still thinking about digitization or have done nothing yet.

“I would like to come back in 12 or 18 months and see if those percentages have changed any, whether the pandemic will have pushed companies to start making some investments,” Gibson says.

STAY THE COURSE

From a broader perspective, Gibson feels that the operational stress test created by the pandemic underscores the importance of staying abreast of industry best practices—not just the three identified in this year’s study but also those identified in the eight previous studies. (See Exhibit 1.) In his view, those retailers that “already have dark stores in operation, click-and-collect store processes refined, urban fulfillment capabilities established, and last-mile partnerships solidified” were better equipped to serve the “shelter-in-place customer” than their less-forward-thinking counterparts.

No one could have seen the pandemic coming or the extent of its effects, Gibson acknowledges. But those companies that have kept up with best-in-class practices over the past nine years are the ones who have the best chance of surviving—and thriving—in the new normal, he says.