Develop flexible, efficient supply chains

The future has arrived in retail, and it is significantly pressuring supply chains to be more flexible, effective and efficient.

Customers want a seamless, easy shopping experience across channels. They want what they want, when and where they want it delivered, and, increasingly, they want it delivered for free. The value of merchandise ordered via same-day delivery is expected to exceed $4 billion by 2018, whereas it was only $100 million in 2014. Pacesetter Amazon Prime now offers two-hour delivery for consumers in 27 US markets. As these new standards emerge, retailers in all categories are rapidly investing in their omnichannel supply chain capabilities. And they are feeling the strains and the headaches.

Retailers are dealing with increasing complexity as they offer flexible fulfillment options, add shipping nodes and allow product returns in stores. They are forced to change forecasting, planning and product deployment algorithms and processes, requiring them to boost data analytics capabilities. They are enabling real-time inventory visibility across channels by funneling sales information back to internal market groups and vendors. They are pressured to improve in-stock levels while reducing inventory costs and to adapt physical networks for warehousing and transportation, requiring them to change operations up and down the supply chain—including within the four walls of their stores.

These moves massively stress budgets. Some of the largest retailers are investing as much as $2 billion to cover capital costs for new systems and capabilities, and we see many retailers of all sizes watching their operating incomes drop by 1% to 2% because of increased expenses for “pick and pack” operations, shipping expenses that can’t be absorbed and other new costs. For example, home-delivery shipping prices have risen nearly 5% annually since 1997, and with both FedEx and UPS upping their rates, this situation is likely to continue. These strains have come at a time when retailers are dealing with price pressures caused by the transparency of online pricing, increasing wages and rising rents.