As manufacturers and retailers continue to experiment with fulfillment options, they need a nimble distribution provider. Distribution to a consumer no longer follows one path, and systems need to be set up to plan for efficient fulfillment to each node of the supply chain, whether it be a consumer, store, or pick-up point. Seamless integration across all consumer interaction points will drive manufacturer and retailers’ continued success.
Changing Demographics
For the next twenty years, 10,000 Baby Boomers will turn 65 each day. By the end of 2013, an additional 34% of consumers will be over the age of fifty, and in 2030 Millennials will make up 50% of the workforce. Gen Y’s current spending power is $200 billion annually, and this amount is only expected to grow. By 2017, Gen Y will outspend Baby Boomers on an annual basis.
While both generations still shop in brick-and-mortar stores, the convenience of online shopping is appealing. For these new consumers, convenience trumps all other concerns. Marketers must adapt to a new era where brand loyalty takes a backseat to instant gratification. All customers now expect seamless shopping, where the experience is designed around convenience, and fulfillment is executed whether the order is placed online or in-store. The multitude of fulfillment options, from in-store pickup to home delivery, are creating logistical puzzles, solved by clever warehousing and order management systems.
Warehouse Space
As retailers react to customers’ demand for seamless shopping, the supply chain is taking on an unprecedented level of importance. Retailers are integrating order management systems and inventories across online and offline stores to efficiently fulfill customer purchases. Distribution centers have evolved from servicing only retail stores to efficiently reaching customers via eCommerce fulfillment, in addition to the traditional retail store base.
To enable fulfillment to consumers and retailers, distributors are expanding infrastructure to be strategically located near consumer bases and FedEx/UPS hubs. The eCommerce boom has intensified demand for these locations, driving the market towards capacity.
Source: CBRE June 2013 data
As the eCommerce boom accelerates, prime industrial space will command a premium. Companies, especially 3PLs, with facilities near FedEx/UPS hubs will see increased business or collaboration opportunities as retailers/manufacturers’ decisions to outsource will heavily rely on proximity (or lack thereof) to these hubs.
Truck Driver Shortage
The trucking industry currently lacks 30,000 drivers and the shortage is expected to grow more acute, reaching 250,000 by 2014. This labor crisis will be compounded by the industry’s high turnover and retirement rates. In Q3 2012, annualized large fleet turnover was more than 100%[ii], and averaged 98% in 2012[iii]. This loss of drivers is further compounded by the high retirement rate the industry is experiencing. The average age of a truck driver is 50, and hundreds of thousands of drivers are age 60 or above and are retiring. The next generation composes a very small percentage of drivers. The shortage of drivers is significantly reducing industry capacity.
“[Trucking] is not a new job. It’s a new lifestyle.”
– Lisa Tucker, Director of Buffalo’s National Tractor Trailer School
New federal regulations aimed at reducing driver fatigue and accidents have limited the amount of consecutive hours a trucker can spend on the road. These regulations are expected to have significant repercussions on the industry; motor carrier productivity is expected to drop by 3%[iv], and an additional 100,000 drivers will be needed[v]. The restart provision in particular is contributing to these adverse effects, and is making on-time deliveries challenging. In particular, supply chains with lean inventories will be more vulnerable to disruption, as they rely more heavily on timely deliveries. (Want to learn more? Check out the Journal of Commerce’s graphic for an interactive look at the Hours of Service restart provision).
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