Moving goods from manufacturer to consumer is a long and involved process. On the surface, it may appear straightforward—package the product, ship it to a warehouse, send it on to the customer. However, it is important not to underestimate the importance of retail logistics. In reality, there are many steps involved in optimizing the travel time, shipping method, packaging, handling processes, and so on. The steps from manufacturer to consumer form a supply chain, and the general task of managing that chain is called logistics.
For example, logistics manages the transportation of coconuts from a Hawaiian farm to a grocery store in Montana. This involves several components, including freight, warehousing, and careful handling and scheduling to ensure the fruits don’t go bad before arrival. Logistics also handles the transportation of medical supplies from manufacturer to medical center, with cold-chain management for vaccines that must be kept below a certain temperature.
In retail, which is the selling of goods directly to consumers, supply chain logistics often operates through multiple channels, including online sales and in-store purchases. Therefore, retail logistics managers are responsible for directing resources to each channel in proportion to demand and organizing warehousing strategies, online order placement processing, bulk store deliveries, and so on.
In 2020, global retail sales totaled $23.36 trillion, accounting for over a quarter of global GDP. Annual e-retail sales have surpassed $3.53 trillion, and experts expect e-commerce to make up 22 percent of the global retail sales market by 2023. Indeed, logistics is vital in retail, has many functions, and can affect your bottom line. This article will help you understand the importance of retail logistics and its effect on your business.
Functions of the retail logistics system
The retail supply chain is a vital component of global economic infrastructure. It enables the movement of goods from producer to consumer in a way that increases convenience for consumers and drives demand for producers.
Importance of the retail supply chain
Without a supply chain—a sequence of actions and services that result in a product making it from manufacturer to consumer—consumers would face great difficulty shopping for items they need. Imagine if you had to visit the local farm for milk and eggs, the baker for bread, the butcher for meat, and the cereal manufacturing plant just to make breakfast.
Store shelves would remain barren, and online shopping would only offer direct pickup from the manufacturing facility. Needless to say, it would make things extremely inconvenient. The supply chain makes it possible to shop for multiple items from all over the world, all at one time, under one roof. It’s what makes it possible to order a new jacket online and have it arrive at your doorstep.
Supply chain managers must keep track of every item in every part of the entire supply chain. Many different software products and digital supply chain tools exist to help manage and track all stages of each item’s journey.
Features of logistics software include the following:
- Order management: This technology receives orders across all sales channels, fulfills them, and allows for tracking, invoicing, returns, and integration with shipping companies.
- Inventory management: The tracking of each manufactured item from the time it enters the supply chain falls to inventory management. This feature enables decision-making as to where to stock and store merchandise. For example, if a certain product has low inventory at a distribution warehouse or retail store, this system can send notifications and trigger new shipments.
- Warehouse management: Inside a warehouse or distribution center, there are many moving parts to the production logistics. Often electronic scanners, conveyors, and robots sort and direct the inventory using warehouse management software.
- Transportation management: If your product needs to move from point A to point B, then you need a way to get it there. Transportation management software allows for transportation arrangements, including scheduling, special handling requirements, and even route optimization, through third-party providers.
- Forecasting: Some tools can track trends and enable demand planning for different scenarios so that you can prepare and route resources as needed.
Logistics software is often capable of collecting all sorts of different types of data along the way. These data enable users to define metrics that measure efficiency, cost optimization, customer satisfaction, consumer habits, and more. This allows them to make informed changes to their overall logistics strategy for the better.
Main retail logistics system functions
Retail logistics systems help streamline the movement of items through the supply chain. These systems are what stock store shelves and allow for online purchases. The main functions of a retail logistics system are as follows:
- Increase product variety in stores, hence allowing consumers to shop for multiple items in a centralized location. This enhances convenience for the consumer significantly and will enable producers to have their products reach more customers.
- Hold goods at strategic stocking points to minimize the time between order placement and the items’ arrival at the customer’s doorstep. Fast order turnaround time improves customer satisfaction with retailers and drives sales.
- Send the correct product to the correct customer or store by tracking all items carefully. Costs can go up significantly because of shipping errors and returns. Mistakes can also lead to loss of business for retailers.
- Optimize order fulfillment for cost-effectiveness and efficiency. Because there are so many components to getting products from producer to consumer, there are many places to introduce errors, bottlenecks, and additional expense. By using logistics software and applying tested strategies, supply chain managers can minimize interruptions and expenses.
- Ensure availability of necessary infrastructure, including warehouses and transportation. For the supply chain to function at all, there needs to be transportation, storage, and administration keeping it all running.
In essence, retail logistics systems function to get products from manufacturing centers to consumers as efficiently and strategically as possible. As such, they are fundamental to maintaining the overall economy, a topic covered in more detail in a later section.
Reasons logistics is so important to retail supply chains
Retail logistics are as important to the movement of products through the supply chain as the brain is to the direction of its connected body. Both logistics and brains provide intelligence, direction, and planning.
Benefits of logistics for retail supply chains
Among the many benefits of logistics in retail supply chains are the following:
- Enhanced inventory management: By adding brains to the supply chain, inventory tracking becomes easier and more reliable. Retailers will know immediately when supply is low and have the ability to arrange restocking and redistribution of goods.
- Reduced transit times: Route optimization tools and strategic location of inventory can reduce both overall transit time from producer to consumer and the time between customer order and delivery.
- Supply chain optimization: Again, by adding a brain into the mix, it becomes possible to look at all parts of the supply chain, examine methods and procedures, and identify ways to streamline the process.
- Improved supply chain visibility: With a brain comes the ability for introspection. Logistics software and tools allow retailers to see into every corner of their supply chain and identify where each inventory item is in the system.
- Minimization of risk: By implementing logistic strategies, retailers minimize their overall risk. They can worry less about whether they can meet holiday demands or whether they’re going to mass ship the wrong item, creating a huge returns expense.
- Competitive edge: All these items put together provide retailers with a competitive advantage. The ability to see, manage, control, and improve the process by which goods make it to the consumer leads to increased agility, decreased costs, and the ability to meet consumer demands.
In addition to all these advantages, logistics can directly impact customers and, hence, influence shopping habits and repeat business.
Effects of logistics on customer service and customer satisfaction
Retail is responsible for getting individual goods into the hands of consumers. Consumers these days have many choices about where they can shop for the same or similar items. Therefore, retailers are regularly in competition with each other for these consumers.
There are many ways to convince a consumer to purchase a product from one retailer rather than another. Customers consider factors such as whether the item is identical in quality, the cost of the item at each retailer, and how convenient it is to shop at the different retailers. A more responsive retailer will inspire greater customer loyalty.
Logistics can affect the ease of use of an online shopping cart or the availability of items in a store. It can expedite the order process and lead to shorter shipping times, as well as reduced shipping costs. It can also facilitate easy feedback and returns processing as needed. Retailers with as many convenient logistics features in place as possible are likely to attract discerning customers seeking a convenient and positive experience.
Retail logistics considerations
An optimized logistics strategy is critical for proper supply chain management. Among the many themes of logistics processes that you should take into consideration when developing a plan for your retail supply chain are the following:
- Scheduling: All the moving parts of the supply chain should synchronize. When a product moves from point A to point B on the chain, point B should be ready to handle it immediately upon arrival and pass it along through to the next link. Careful scheduling helps avoid bottlenecks, lack of resources, delivery delays, unavailable transportation, and more.
- Tracking: A key feature of retail logistics is the ability to track items both on the inventory side (from producer to distribution center or retail store) and on the customer side (to the customer’s desired destination).
- Central visibility: Along with tracking capabilities, retail logistics platforms provide central visibility through dashboards, allowing supply chain managers to see all inventory, warehouse statuses, and order statistics in one place.
- Continual improvement: A good logistics strategy employs the methods of continual improvement, identifying via metrics and collected data ways to improve transit times, reduce costs, and more.
- The right software: Many logistics management systems exist. While several features are standard across all such systems, each is unique. Supply chain managers should take care to choose the system that best meets their needs.
- The right partners: Frequently, retailers outsource their logistics management to third-party logistics (3PL) providers. This eliminates the retailer’s burden, and 3PL providers often have industry-leading experience, making them better equipped to handle and optimize logistics processes than most retailers.
Agility is one of the world’s leading logistics providers, offering supply chain smarts, technology, and personal service. Retailers worldwide trust Agility to provide deep expertise and supply chain solutions powered by industry-leading technology.
How retail logistics can aid sustainability
The ability of logistics practices to streamline processes, decrease shipping time, and optimize costs can lead to aiding sustainability efforts. The transportation of goods makes use of vehicles, which may contribute to carbon emissions, and packaging, which can end up in the landfill. Both effects, however, can be mitigated and minimized.
Importance of sustainability
Sustainability refers to practices that support a stable environment or ecosystem. These practices include reducing carbon emissions to slow climate change by minimizing or optimizing travel or using sustainable fuel sources, such as hydroelectric, solar, or wind. Using recyclable materials, for example, reduces landfill mass and depletion of natural resources, such as trees.
In logistics, sustainability efforts seek to build greener and more equitable supply chains. Agility, for example, employs sustainability efforts across the following sectors:
- Protection of people: Implementing industry-leading health and safety as well as fair labor programs contributes to the protection of all Agility employees worldwide.
- Care for communities: By engaging in community projects local employees suggest, Agility can support communities where it has a presence with efforts such as educating more students, including women and girls.
- Humanitarian logistics and refugee support: When disasters or conflict disrupt supply chains, it can destroy lives. Agility lends expertise and resources to help communities recover from humanitarian disasters.
- Greener supply chains: Improving supply chain speed, reliability, cost, carbon emissions, and waste contributes to greener and more sustainable supply chains.
- Sustainable development through trade: Agility’s scale and reach make it uniquely positioned to leverage the power of global trade to improve the lives of customers, employees, and communities.
All these efforts are vital for the health of the global population, environment, and economy. Sustainability efforts allow supply chain processes to continue without ignoring or contributing to the decline of local communities, destroying habitats, or causing any other type of negative, irreversible change. They help curtail the overuse of limited resources, degradation of the environment, and burnout among employees.
Sustainability and supply chain efficiency
Often sustainability efforts and supply chain efficiency go hand in hand. One contributes to the other. For example, finding optimal delivery routes makes packages arrive faster while reducing carbon emissions because of the decreased drive time. Recycling also minimizes resource use and saves costs while having a positive impact on the environment.
Optimizing warehouse handling processes can reduce machinery up time, as well as electricity and resource usage. Migrating logistics technology workloads to a cloud environment improves agility, scalability, innovation, and optimization. It also reduces the need to provision IT infrastructure that takes up space and can’t be as efficiently maintained as a cloud data center.
Offloading supply chain logistics to a 3PL provider can also increase efficiency by allowing experts to handle everything in bulk alongside similar tasks. And if you choose a 3PL provider that prioritizes sustainability efforts, you further support those efforts.
Logistics practices contributing to sustainability
Incorporating practices into your logistics strategy that support sustainability is almost always a win-win situation. As previously described, sustainability begets efficiency and cost savings, and efficient practices often result in improved sustainability. Among the more common logistics practices that contribute to sustainability are the following:
- Emissions reduction: Fairly straightforward is the notion that reducing emissions promotes sustainability. Carbon emissions contribute to climate change. Climate change leads to more volatile weather patterns. More volatile weather patterns can lead to supply chain disruption. Optimizing routes, using smaller, less fuel-intensive vehicles or electric vehicles when possible, and only transporting full loads are all strategies that contribute to emissions reduction.
- Waste reduction: Reducing waste can take many forms. Optimizing warehouse processes reduces the use of resources, recyclable or eco-friendly packing material minimizes nonbiodegradable waste, and so on.
- Improvements in energy consumption: Replacing older equipment with newer, more energy-efficient models and using energy-efficient lighting or environmental controls all reduce overall energy consumption.
- Alignment with environmental regulations: Regulations may apply to the storage, transportation, and disposal of certain environmentally hazardous materials. By utilizing logistics practices that align with environmental regulations, you protect the environment and employees’ health and well-being.
- Community and employee engagement: Logistics providers and retailers don’t operate in a vacuum. They have physical locations within communities and employ members of those communities. How a business treats its employees affects those employees’ lives, their family members’ lives, and the community’s sustainability in general. Also, being cognizant of practices that generate waste or pollution can directly affect community health.
Sustainability efforts are always ongoing and important for the future of logistics. As technological advances in supply chain logistics meet with increased complexity, stakeholders must continually refine these practices.
How effective retail logistics can affect the economy
The word economy generally refers to the wealth and resources of a particular region as it relates to the production and consumption of goods and services. The retail sector is a significant component of many economies because it covers the territory where products meet consumers. As such, effective retail logistics directly impact a multitude of economic variables.
Global and local economies
Economic systems exist on both local and global levels, with a whole host of semilocal or global-local levels in between. A local economy may consist of all business and consumer activities within a single town, or it might encompass the goings-on of a large city or entire state. You can examine economies on a national scale, and at the extreme end of the spectrum, you can explore global economic impacts. Retail logistics impact economies of all sizes.
As with sustainability, there is a two-way street with effective retail logistics impacting the economy and economic processes affecting retail logistics. During an economic downturn, for example, supply chain resources may become more limited. Retail sales may also dwindle, decreasing the overall volume of product moving through the supply chain, possibly requiring adjustments to strategies to maintain efficiency.
Local economic effects of retail logistics
At the level of a town or a city, retail logistics can impact supplies in local stores, including how quickly they restock items. If consumers have an easier time finding the items they want in local stores because of supply chain practices that keep diverse inventory on the shelves, they are more likely to spend money at those stores instead of online. That money then flows into the local economy, contributing positively.
Retailers and logistics providers alike may also employ large groups of people in a local community. The more efficient and optimized the logistics practices are, the better the work environment for those community members. Efficient practices may free up funds for higher wages, directly impacting those wage earners’ ability to spend money.
Global economic effects of retail logistics
At the global level, the entire supply chain comes into focus. Products produced in Indonesia travel across the ocean to the United States, pass through customs, continue by truck or train to distribution hubs, and eventually end up on retail shelves or doorsteps. Demand for the products from the United States drives production in Indonesia. The money paid by retailers for the goods flows into Indonesia’s economy and out of the United States.
When supply chains reach into developing markets, there is an excellent opportunity for those markets to grow and expand. Those local economies can rise to better compete with other companies around the world. Without a supply chain to provide passage of those goods to other countries and markets, local economies remain more isolated and have less opportunity to benefit from overall global economic growth. In a way, extending supply chains brings disparate regions and emerging markets into the global fold.
Learn how Agility can help manage your supply chain
To remain competitive in a global marketplace, retailers must sell through multiple channels, including online and in-store. For each channel, an optimized logistics process can contribute to increased sales, reduced costs, improved customer satisfaction, and economic growth. Many logistics optimization strategies also support sustainability and global well-being.
If you’re ready to improve your retail logistics strategy but aren’t sure how to start, consider 3PL services from Agility. As one of the world’s top freight forwarding and contract logistics providers, Agility is a leader in inventory technology to enhance supply chain efficiency. Offering scalable warehousing and distribution capabilities in some of the world’s fastest-growing markets, Agility 3PL solutions include specialized handling expertise, product integrity, and strategic locations. Contact Agility contract logistics specialists to learn more today.