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Retail supply chains' balancing act

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Annual study by the Retail Industry Leaders Association (RILA) finds retailers will focus on multichannel operations and shift from cost cutting to growth.

After several years of laserlike focus on cost cutting, retail supply chains are starting to return to a more balanced strategy that places equal emphasis on cost and customer service. At the same time, they're striving to respond to the explosive growth and ever-changing demands of multichannel, direct-to-consumer commerce.

Just under 40 percent of the retail supply chain executives participating in the latest edition of The State of the Retail Supply Chain Report said they would pursue a balanced cost and service strategy for their organizations in 2012. That's a significant change from the findings during the economic downturn, when most respondents focused primarily on cost. This time out, only 12 percent said their supply chain strategy would focus on controlling costs. Another 32 percent said this year's strategy would support store revenue growth, and 17 percent said enhancing store-level customer service would be a main priority. The annual study is conducted by the Retail Industry Leaders Association (RILA) and Auburn University College of Business, and was sponsored by the consulting firm Accenture.

What do retail supply chain execs worry about most? The new U.S. federal motor carrier safety regulations were most frequently cited as an area of concern for 2012. Other big issues they're facing included sufficient transportation capacity and talent retention in an improving economy. Despite those looming challenges, respondents were optimistic about the future. In fact, 64 percent of participants said they expect their companies to rake in higher revenues in 2012 than in 2011.

The report devoted a considerable amount of attention to the impact of electronic commerce and multichannel, direct-to-consumer sales on retail supply chains. More than 85 percent of participants said that direct-to-consumer fulfillment would command more of their attention this year than last. And as demand shifts from in-store purchases to ordering online and by mobile device, multichannel fulfillment is becoming more critical to retailers' success. Indeed, 68 percent of respondents said they had multichannel operations already in place.

In a multichannel scenario, retailers would ideally fill orders for store, online, and mobile sales from a common pool of inventory. But the complexity of multichannel operations makes that difficult for retailers to achieve, the report noted. Retailers that are dealing with multichannel fulfillment face challenges associated with variation in shipment size, order filling processes, and delivery methods, as well as differences among sales channels in the stock-keeping unit (SKU) assortment. Less than 18 percent of the retailers surveyed currently offer the same SKUs across channels, the research found.

Note: This article was updated on June 22, 2012.

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