Reuters Events | Supply Chain & Logistics Business Intelligence

De-risking and upgrading retail supply chains through automation and sustainability will be key to the future of retail

“Regarding retailers … they've gained a new appreciation for everything that helps them to de-risk their supply chains,” says Malcolm Wilson, CEO of XPO Logistics Europe and soon-to-be CEO of what will be the second-largest contract logistics provider in the world once XPO restructures.

He feels that this last 12 months have opened up the eyes of many in retail supply chains to the pressing need to have a responsive and sustainable supply chain to cater to the modern consumer. That customer now expects extremely rapid fulfilment of their purchase intentions. They expect that process to be reliable and omnichannel, with multiple routes through to the product. What’s more, the pandemic has opened up a huge number of consumers to acquiring goods through these new routes.

The pandemic has shown the value of having a strong supply chain

This creates significant risk, as failure to fulfil in this booming, highly competitive and omnichannel environment has long term consequences. Customers will quickly turn their backs on a slow-to-deliver brand, with severe consequences as the burden of returns and cancellations impacts warehouse operations and logistics trains.

“The pandemic has shown the value of having a strong supply chain,” notes Wilson, driving retailers to recognise “the importance of dealing with large scale, financially stable organisations." He believes that retailers are increasingly looking for partners “that can access capacity, automation, different operating models, those that can source from a greenfield, turnkey kind of real estate environments, and, obviously, the ability to manage large labour pools.”

This lies behind XPO’s decision to spin the company off into two segments, separating transportation and logistics into their own companies so that they can focus on the scale and technologies the post-pandemic world will require.

An expansion in volumes and complexity

“I think everybody knows that supply chains can be a complex environment,” says Wilson. In particular, “there's a lot of complexities of running … an e-commerce supply chain. Your lead times are shorter, and the consumer wants what they want when they want it. Retailers need to keep the right inventory levels in the right places, but also coping with a corresponding spike in returns.”

These spikes, both in deliveries and returns, have been massive in 2020 and show no signs of abating in 2021 as cohorts of new consumers were opened to e-commerce options and existing customers bought both more volumes and a more diverse product set.

I think different generations, which historically might not have been so open to shopping online, have become very open to the convenience of buying online

“I can speak from personal experience,” says Wilson, “I have an 84-year-old father-in-law that never shopped online, but now he's got every shopping app, and he probably will never go back to the time of going to the shop himself. I think, across the board, all types of products have become much more online-friendly. Still, I think different generations, which historically might not have been so open to shopping online, have become very open to the convenience of buying online.”

The older generation is “Expanding the types of items that they want to buy online,” notes Wilson. “Everything from furniture, office equipment, exercise equipment, appliances, mattresses, and DIY products are now being snapped up online along with expectations of speedy delivery.”

“It's here to stay. I don't think it's something that we're going to see decrease going forward. If anything, it might even accelerate further as we exit the pandemic," he believes.

De-risking with sustainability

“Because it is such a high-cost environment in the new e-commerce world, there's one specific, standout trend,” remarks Wilson: Sustainability. He views this as a critical component of de-risking supply chains and making them more resilient in the future. “It’s something that people are paying much more attention to.”

For their part, XPO is “Focusing on reducing things like greenhouse gas emissions through our operational activity. We apply a lot of a lot of energy and focus on how we do that.”

“This primarily comes down to working with our customers in design-build of operations. Typically, we're trying to design those facilities to the very highest standards of sustainability.”

This helps to reduce risk in supply chains by making distribution more cost-effective in the long-term and it is this forward-looking outlook that Wilson emphasises: “It's about the long term, and using advanced technology in warehouses to help speed up the processes and speed up the general activities that take place, which ultimately, helps  make the supply chain more efficient.”

Automation and technology

It is in Wilson’s opinion these advanced technologies that are fundamental to making the new retail supply chain landscape work.

More automation is a constant, driving more efficiency, more accuracy, [and a] higher level of quality

For him “More automation is a constant, driving more efficiency, more accuracy, [and a] higher level of quality,” which will be vital “in the context of what we need to do when we think about coming out of this pandemic.”

This may mean “Things like cobots, where we have machines that work alongside people, that can handle repetitive tasks. “In Europe, we're working with Cognex. That’s a machine vision technology company, where it's able to scan barcode very quickly, which improves productivity. In the warehouse, in our US business, we've partnered with ProGlove on wearable technology. So, all of these things are working in our facilities and are designed to speed up the throughput of items as they move through our warehouses.”

There's no doubt that every retailer is looking at moving more to a true omnichannel model, where e-commerce becomes a large part of their value proposition for customers

However, he does note that “One of the biggest challenges, in fact, for retailers is handling returns, because the various different actions in regard to the grading of the products or the handling of the credit to the consumer,” which means a “more manual approach,” where “you do need human involvement in some instances.”

However, he notes that here the above technology is improving efficiencies and reducing labour requirements but, more importantly, that there is no way back now, as “There's no doubt that every retailer is looking at moving more to a true omnichannel model, where e-commerce becomes a large part of their value proposition for customers.”