How E-Commerce Is Changing Retail and Ways to Optimize Fulfillment
January 25, 2021
Vice President of Supply Chain Operations, Nathan Schmies sat down with Inbound Logistics to discuss the future of retail and implement a strategic e-commerce fulfillment strategy for optimal success.
*Responses to each question are not in exact sequential order
With the pandemic causing a huge surge in e-commerce demand, how was this peak season compared to those in the past? How has Hub Group positioned itself to deliver?
Nathan Schmies: We’ve seen a surge in e-commerce this year-both from an industry and from a company point of view. In 2019, we saw around 5% of all CPG sales come from e-commerce. This year (2020), we saw that increase to 7%, which is almost a 50% increase. Even if this is a relatively small percentage of total sales, it’s receiving disproportionate attention as these growth rates will likely continue.
Before COVID, research suggested that consumers were still likely to shop in stores for some categories like food and groceries. We saw these percentages skyrocket this year. This will likely scale back post-COVID but probably not all the way back. Although forecasts did not predict what we saw earlier in the year, we were able to leverage our vast network and retail providers to quickly modify solutions to manage through it. This really exemplifies the need to build that resilient, agile and highly visible supply chain. I think companies that are intentional on these points are going to better positioned to manage through events like this.
What has been your assessment on retailers adjusting to the current climate?
Nathan Schmies: We always see retailers adjusting to stay upfront and follow consumer demand, although this year it has accelerated. An example of retailers adjusting this past year would be Walmart. In September of this past year, we saw Walmart roll out some major changes to their OTIF (On-Time In Full) compliance program. Their new target is 98%, which is up from 87%. Walmart also announced another initiative, SQEP (Supplier Quality Excellence Program). SQEP is positioned to increase quality and visibility into Walmart’s supply chain. One way to do that is to require an ASN (Advanced Shipped Notice) for all POs. Missing and/or non-compliant shipments will be fined 3% of their value. This [initiative] is just turning up the dial with aspects like scheduling, lead time, costs, consistent sailing schedules, technological capabilities, etc. This is something that Hub Group’s CaseStack Retail Supplier Solutions really focuses on which we’ve been doing for almost 20 years now.
What do you predict for supply chains across the country in 2021 and how can retailers thrive in the E-Commerce boom?
Nathan Schmies: I can start by pointing out what we discussed regarding stricter retailer compliance, like what we saw with Walmart and OTIF. I think these types of compliance programs for retailers will continue to be more challenging, but for good reason. Precision is necessary to execute an omnichannel strategy. I think that retailers that continue to work with companies like ours, who enable their vendors-especially the small to medium-sized ones- to compete on a level playing field with the larger companies. Retailers like to place smaller orders as frequently as needed, and suppliers like larger orders more spaced out. Through collaborative consolidation, both of these can be achieved with optimized order cycles, lead times and shared space on truckload shipments.
I predict we’ll see more marketplaces or at least more market penetration for those that are already active. These marketplaces can be similar to what we’re already seeing with the Amazon Seller Central model. This allows sellers to sell directly as third-party sellers. This allows a product offering with a digital or unlimited shelf which is not constrained to physical store limits. This shifts the responsibility of storing and stocking inventory and fulfillment to the seller. So I think both retailers and suppliers will adopt more marketplaces and direct-to-consumer models in the coming year.