The pressure is rising for retailers to fine-tune their supply chains as they source and deliver more products than ever at an increasingly rapid pace across the globe. Retail supply chain executives are challenged on many fronts, from operations and sourcing to fulfillment and last-mile delivery. The growing uncertainty about global trade and tariffs also complicates the picture, and new technologies offer promise but can be difficult to pilot and implement.
The retailers that overcome these challenges will be those that are flexible and responsive with the right technology, people and strategies.
TARIFFS AND INTERNATIONAL UNCERTAINTY
The prospect of tightening global trade policies has forced many retailers to take a second look at their sourcing and supply chains. U.S. tariffs of 10 percent on $200 billion worth of Chinese goods took effect in September, adding to 25 percent tariffs on $50 billion in goods that took effect last summer, and uncertainty remains surrounding the direction of U.S trade policy. As of press time in April, negotiations between the United States and China were ongoing but President Trump said, “we’re talking about leaving them for a substantial period of time” rather than removing the tariffs.
Retailers spent much of 2018 contemplating the issue and trying to mitigate the risks. Some frontloaded inventories while others looked for sources outside of China. Walmart CEO Doug McMillion said in December that while the company was doing its best to avoid price increases, he was concerned about the rest of 2019.
“It is all throwing uncertainty into the supply chain and sourcing decisions that companies are making,” says NRF Vice President for Supply Chain and Customs Policy Jonathan Gold. “What is going on with trade has become a major challenge.”
In addition to China, the pending replacement of the North American Free Trade Agreement with the new United States-Mexico-Canada Agreement is adding to the pressure. Retailers are engaging in some “interesting planning” measures to try to mitigate some of the growing risks to the global trade system in terms of how they perceive their supply chains, says Thomas O’Connor, senior director and analyst on Gartner’s supply chain industries and programs team.
Other global factors are also at play. The International Maritime Organization’s low-sulphur fuel mandate goes into effect next year to reduce harmful emissions from ships and will cut the global sulphur cap from 3.5 percent to 0.5 percent. While the measure is certain to add to fuel costs, it remains to be seen how much that increase will be and at what rate retailers and ocean carriers will split the burden, Gold says.
INCREASING COMPLEXITY
Whereas the traditional retail model was to deliver mass volumes of stock to single locations, today’s retail supply chain has become “extremely complicated and fragmented,” says Alex Sbardella, senior vice president of global innovation at GDR Creative Intelligence. Direct-to-consumer models, omnichannel fulfillment, new supply lanes and continuing pressure to do it all faster and at a lower cost have forced retailers to work harder to get merchandise where it needs to be.
The complexity is driving many retailers to seek greater flexibility in their supply chains, not only in how they source but how they move and store products. A shortage of warehouse space on the West Coast — created by the frontloading of imports ahead of expected tariff increases in the past year — has given rise to flexible warehouse solutions, while new marketplace-style transportation platforms modeled after Uber and Airbnb are now offering flexible transportation options. Startup Flexe offers on-demand warehousing at more than 1,000 locations around the country; companies like Transfix enable shippers and carriers to quickly pair on price, capacity and destination.