How Ecommerce is Transforming Today’s Supply Chain

by Rakuten Super Logistics | eCommerce Strategy

In the age of eCommerce, to paraphrase a classic television ad, the modern supply chain “is not your father’s industry.”

The era when warehouses and distribution centers stood as large, staid structures designed to simply meet the demand created by sales from America’s retailers, has evolved into a complex technological infrastructure servicing today’s rapidly expanding ecommerce space. The rapid growth of eCommerce has drastically changed the global marketplace.

Simply put: these days, online consumers are far more demanding than those in previous eras, and both retailers–and the logistics sector servicing those demands–are scrambling to adjust to the new landscape of online consumerism and the modern supply chain.

Technology Is Rapidly Transforming The Way Goods Are Warehoused & Shipped

In what is likely both a microcosm and portent of things to come, the nation’s largest retailer—Walmart—may soon use drones to inspect labels and inventory. As traditional retailers large and small field fierce competition from online businesses, it’s no surprise that Walmart—like many other retail industry giants—is turning to technology to speed up delivery of goods to customers.

For businesses of any size looking to succeed in today’s fiercely competitive marketplace, inventory management and related technology can often mean the difference between a healthy and unhealthy bottom line.

“One of the keys to business success is to improve inventory management software at the retail level, in order to better understand what product is available, in what quantity, and in which locations,” explains Mike Manzione, Chief Executive Officer of Rakuten Super Logistics (RSL). “The skills and tools required to run the modern retail store have evolved, and as a result many retailers are falling behind.”

In response to the demands of consumers—who want what they want delivered quickly, and at a very low cost—retailers are examining all options for cutting both the time required to deliver goods to customers, and the related logistics’ costs.

Building More—And Larger—Fulfillment Centers Nationwide

With the rapid growth of eCommerce and online retail, it’s not surprising that a report by commercial realtor CBRE Group Inc. found that demand for ecommerce warehousing has resulted in not only an increase in the number of fulfillment centers, but also the size and height of the structures.

The report found that 50 years ago, the average height of a warehouse was about 24 feet; by 2017, that number had grown to over 33 feet in height. And the trend lines appear to indicate that ‘even bigger is better’ when it comes to warehousing, as some ecommerce companies seek out warehouses with 40-foot high ceilings, often with mezzanine levels.

According to the CBRE data, 13.7 billion cubic feet of warehouse space was built between 2010 and 2016, with 65 percent being built within the 10 largest US markets. Not surprisingly, ecommerce businesses are purchasing warehouse space at a much faster pace than traditional brick and mortar companies; in 2016, ecommerce purchases grew by 25 percent compared, to a 6 percent decline in brick and mortar purchases.

An additional study conducted in 2016 by PricewaterhouseCoopers and the Urban Land Institute also found that ecommerce companies require as much as 3 times more warehousing space than did traditional retailers. As of that study, online retailing behemoth Amazon owned more than 150 warehouses, totaling over 100 million square feet; at the time of the study, the company had also announced adding at least 3 dozen new facilities to that total.

RSL’s Mike Manzione confirms that the demand for fulfillment centers continues to rapidly grow in step with the eCommerce space and the modern supply chain.

“Fulfillment companies continue to grow at a dramatic pace,” explains Manzione. “What retailers are finding is that 3PLs, such as ours, can offer both reduced fixed costs while aligning those costs with the volume of a client’s business. That ability to scale—both up and down—is critically important, and is one of the great advantages that 3PLs offer. Companies such as ours that have multiple warehouses can also move the products closer to the end user, in keeping with ecommerce customer demand for on-time delivery.”

Technology Shapes The Future Of Logistics In The Ecommerce Age

Industry experts agree that as the modern supply chain adjusts to the rapid growth of eCommerce, the industry will likely be both less expensive and more efficient than in years past.

A 2017 “State of Logistics Report” conducted by the Council of Supply Chain Management Professionals (CSCMP) found that overall spending on logistics dropped, despite a rise in energy prices. The study found that the price of energy was no longer the “primary factor” in determining logistics costs; rather, consumers’ demand for ecommerce deliveries is now the main determinant for the cost of logistics.

In addition, the study found that efficiencies in the industry—driven largely by advances in technology—are also helping to control costs within the logistics sector. In a wide array of areas—from warehousing and parcel delivery to motor freight—technology is transforming the way the modern supply chain responds to the consumers’ demand and the growth of eCommerce.

According to the CSCMP survey, “technologies ranging from big data and predictive analytics to artificial intelligence and robotics” are transforming the entire modern supply chain structure.

Not surprisingly, the study also predicts that businesses making smart technological choices today are most likely to be the ones prospering in the years to come.

Retailers Respond To Consumers Demand For Simpler, Easier Methods For Returns

Another area in which consumer demand is driving change within the logistics sector pertains to returns. Ecommerce customers are demanding greater simplicity and better options when it comes to returning purchased goods—and the logistics industry is adapting to that demand.

“The fact is that consumers want the returns process to be simplified, and as a result retailers are offering expanded methods to return products,” says RSL’s Manzione. “That’s one reason why we are seeing retailers moving away from returning products to just their store or warehouse.”

Consumer demand is also driving many of the ‘big picture’ decisions within the logistics sector.

The CSCMP study confirmed that the logistics industry is moving toward a digital, flexible supply chain “optimized for ecommerce and last mile, last-minute delivery.”  The study attributed much of the logistics industry’s ability to accommodate changes to rapid advances in technology.

Simply put, the CSCMP study concludes that “winners and losers will emerge as companies that make the right technology investments and strategic choices”, as they will be the businesses that ultimately outperform their competition.

From advancements in artificial intelligence to greater use of robotics in state-of-the-art warehousing, the future of America’s logistics sector will depend upon a forward-looking adaptability to the growth of eCommerce that past supply chains could not even have imagined possible.