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Moving Supply Chains Closer to Consumers Will Separate Winners at Retail, Deloitte Says

A study from Deloitte says making the right investments–such as moving supply chains closer to where the consumers are–can help distinguish winners from losers at retail.

The study looked at some of the key issues for retailers in 2019, noting how this year could be the tipping point where decisions on investments that help empower the consumer could pay off big time down the road. It also noted the trend in the last few years where growth has been coming less from increasing the number of new stores and more from big, bold investment plays such as in digital, technology, acquisitions and fulfillment processes. Much of that has stemmed from the changing retail landscape in which technology and digital has helped fuel a more knowledgeable consumer who now is no longer limited to just the brick-and-mortar distribution channel.

According to Deloitte, that trend not going away anytime soon.

For 2019, the study is forecasting an empowered consumer who has an increased desire for personalized services; a continuation of newer, smaller and tech-enabled competitors stealing market share; an economic climate with high consumer confidence, but a tightening monetary policy that is typically a precursor to a recession; a value chain across retail becoming increasingly compressed; and the blurring of what were once distinct industries–such as retail and technology–that now are more interconnected than ever before.

Consumers in 2019 are likely to face both headwinds and tailwinds. Tax cuts, along with nominal wage growth, have provided a boost to disposable income. But recent Fed rate increases have meant higher borrowing costs, and potential tariff increases on a wider range of goods from China could add to price pressures.

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One area where retailers can come out ahead is in their supply chain.

The old adage that “you can’t sell what’s not on the floor” is no longer accurate, according to Deloitte. Many firms are investing more in supply chain design, and it has become one way to offer the consumer a differentiated service, Deloitte said, also cautioning that making the supply chain faster, more predictable and cheaper can be difficult to manage all at the same time.

New consumer-focused offerings often require duplicative labor and time-consuming delivery processes, which in turn can be a challenge to manage, the report noted. Retailers in turn should reassess where the profit is derived from, perhaps requiring savings from forward-looking supply chain investments and identifying other ways to offset the increases in expenses, the report suggested.

For the supply chain to be a form of differentiation, the study suggests using automation beyond just warehouses.

As retailers explore store redesign, underperforming doors can be converted to locations that can store, pick and pack, and then ship out. Retailers should also take a look at inventory orchestration, with an eye toward a singular approach for the best use of inventory across its manufacturers, vendors, third-party logistics companies, distribution and fulfillment centers and its stores.

And by having a supply chain that’s localized to where the customer is located, retailers can be more nimble in providing an on-demand approach. That would help retailers speed up fulfillment, as well as ease over-capacity and under-capacity concerns during seasonal demand spikes or when there’s a special or regional promotion period. And by looking at what long-term competitive advantages can be garnered through wider supply chain strategies, companies can better zero in on the improvements at the supply chain level that can make that component be a growth driver for the bottom line.

Other key caveats for retailers to keep in mind include knowing who you are and what value you bring, and creating loyalty by investing with integrity and with consumer identity in mind.

Having a consumer-focused supply chain, according to Deloitte, is an “imperative for matching the many demand channels” now available, and having a supply chain that can profitably deliver on the brand promise can be a key differentiator for retailers.