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Supply Chain Management: Retail's Silver Bullet

Released in October, RILA and Auburn University’s 2009 study “The State of the Retail Supply Chain” surveyed 40 of America’s leading retailers to examine current trends, leading practices and key issues that will have the greatest impact on strategy and planning for retail supply chain executives now and in the near future.

By Casey Chroust

Illustration of Grocery Store

IN THE MIDST of a challenging economic environment and shifting consumer trends, retailers are taking an even sharper look at the link between improved financial performance and managing endto-end costs. As a result, the role of supply chain management (SCM) is in the middle of an era of renewed focus and innovation.

Until now the primary strategic approach for retail growth had been to “add new stores.” Additionally, some processes such as merchandising and ordering were carried out at a decentralized store level. Now with retailers facing a different economic landscape, there is no market for larger upfront investments. In preparation for future growth and in order to bridge financially to better times, retailers are reining in costs and centralizing their operations to improve efficiency and reduce expenditures.

Faced with slowing revenues, leading retailers have identified supply chain management as an area where costs can be controlled and further reduced. They are placing a greater corporate focus on the strategic opportunities within SCM and taking a comprehensive look at how they can increase efficiency, decrease costs and improve customer satisfaction.

The Retail Industry Leaders Association (RILA) represents the world’s largest and most innovative retail companies. RILA members have revolutionized the supply chain management and goods movement. Released in October, RILA and Auburn University’s 2009 study “The State of the Retail Supply Chain” surveyed 40 of the country’s leading retailers to examine current trends, leading practices and key issues that will have the greatest impact on strategy and planning for retail supply chain executives now and in the near future.

The principal takeaways from this study revealed that although SCM has long played a critical role in retail, the challenges of a global economic recession and ever-tightening budgets are driving leading retailers to rely more heavily on supply chain as a solution for overall organizational success.

According to the report: “Though revenues are stagnant in many retail organizations, costs are viewed as controllable. In particular, the expenses falling under the control of SCM executives are receiving strong attention from the top of the organization. SCM executives now find themselves in the spotlight and must perform their brand of magic to save the show.”

As such, retailers have been making significant investment in SCM operations with 90 percent of respondents who reported investing the same or more in supply chain process improvement; 70 percent in management development; 60 percent in technology and 60 percent in workforce training. These gains emphasize the desire to improve supply chain efficiency.

Additionally, to offset declined consumer spending, 80 percent of supply chain management executives reported a focus of their efforts on reducing excess inventory with close to 70 percent reporting that they are placing smaller initial orders.

To be effective, the report identifies that SCM executives need to closely manage the total cost of global procurement, streamline inventories, and decrease transportation expenses, while ensuring product availability and strong customer service. They are responding with strategic investments and process improvements in the supply chain that focus squarely on delivering the products customers want and the value and service they deserve.

The tools that enable superior supply chain management and generate a competitive advantage separate the best-in class retailer from the laggard retailer. Four major themes emerged from this report as leading practices within retail supply chain management:

1) Leverage strong distribution networks that are capable of supporting high volumes.

2) Create flexible capacity to adjust supply chain infrastructure and support unanticipated fluctuation in demand.

3) Align inside and outside the organization to break down silos and manage processes more holistically.

4) Continually develop the internal talent pool to enhance the quality of the workforce.

These best-in-class capabilities are key to the future success of retail supply chain management and central to the vitality and fortitude of retailers.

Ultimately, the retailers who are best able to respond to changes in consumer demand while driving down costs will come out ahead. Not only will they provide more value to their organization in the short term, but they also will put themselves in an ideal position to thrive when the marketplace recovers and consumer trends improve.

The detailed results of this study, along with many other timely and important topics, will be addressed at the 2010 RILA Logistics Conference, February 21–24 in Orlando, Fla. The conference brings together the retail industry’s top logistics and supply chain executives for three days of collaborative dialogue and educational content. To learn more about “The State of the Retail Supply Chain” report, or the RILA annual logistics conference please visit www.rila.org.


RILA would like to thank Auburn University for their collaboration and thought leadership on this study. RILA also thanks Fortna for its support of this research study and continued commitment to helping retailers achieve excellence in supply chain operations. Last, many thanks to the many retailers who participated in this year’s study. We look forward to continuing our collaboration with Auburn University and the participating retailers on the 2010 State of the Retail Supply Chain study.


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