The road towards a greener retail supply chain

By Raghav Sibal, Managing Director, ANZ, Manhattan Associates

The importance of sustainability in the retail industry is now more prevalent than ever, and it’s within the industry’s supply chain that the most fundamental aspects of sustainability reside. Today, consumers expect the ability to choose sustainable delivery options, and retailers must work to accommodate these modern expectations.

From quick delivery to split shipments, the current eCommerce boom has put supply chains to the ultimate test – but it comes at a great cost to the environment. To combat this, technology will always be a useful tool to innovate retail operations for the better, and for the greener. However, on top of this, new customer expectations for sustainability are proving that today’s consumers care more about sustainable delivery than retailers may think.

The fast-shipping ultimatum

With the eCommerce boom now fuelling the retail industry, quick delivery and shipping has become the biggest force against supply chain sustainability. The emergence of two-day shipping for “free” became mainstream in 2005, and with the release of Amazon Prime, and it has since started a chain reaction. For these major players, customers who paid an annual membership would be guaranteed two-day delivery for every order at no cost. This removal of shipping costs inadvertently hid the impact of the change in delivery timeframes from the customer, and as a result, behaviour began to change, as did expectations.

Fast forward about 10 years, and the delivery expectations jumped to one-day delivery and included free returns, still without any real impact felt by the consumer. Today, half of all consumers expect not to be charged for “standard” two-day delivery, and 62% say free delivery is their top consideration, according to new research conducted by Manhattan Associates. However, in that same survey, 70% said they are prepared to pay extra for speed and convenience, such as one-hour, same day or Sunday delivery.

During this shift towards quick delivery, the impact behind the scenes on the supply chain and on the planet has been staggering. Global parcel shipments have grown from 44 billion in 2014 to 132 billion in 2020 and are projected to approach 316 billion in 2026.

Then there is the resource capacity crunch — there simply are not enough trucks and drivers to deliver all of these packages and get them where they need to be on time. In fact, industry professionals rate the issue as the biggest challenge for supply chains in 2019. This has led to the rise of the gig economy, leveraging services like Uber and other courier-on-demand businesses, to fill the gap. But filling the need for capacity causes even more vehicles to be on the road, which leads to more traffic and more idling and even more carbon emissions.

Greener delivery options for consumers

Another impact of expedited shipments is the inability to consolidate at the distribution centre. When we place a two-day order for five items and all five are not available in the same warehouse, the retailer must source those items from multiple places around the country, creating multiple packaging, distribution, and delivery events for a single order, without having the time to optimally consolidate those items along the way.

Likewise, as online shopping rates remain high due to the impacts of COVID-19, sustainability is more important to Australian consumers than ever before, with 63% stating they would pay extra for a delivery service that was more environmentally-friendly. New research from Manhattan Associates, Shippit and Greener also revealed 60% of Australian consumers are open to receiving a delivery at a later date if it meant that it was delivered more sustainably.

Due to the ongoing impacts of the pandemic and its convenience, home delivery is now the preferred delivery option for 69% of Australian online shoppers. However, consumers are not prepared to just accept the convenience of delivery at the cost of the environment, and they are increasingly aware of the growing impact the eCommerce sector is having on CO2 emissions.

Importantly, our research has also revealed that over half (60%) of Australian consumers indicated they often receive their online order in multiple shipments, and 81% of them said that they think this is an inefficient and unsustainable way of delivering goods. In fact, the same number (81%) also said they would prefer to receive their order at a later date if it meant that it would arrive in one consolidated delivery. A further 64% of consumers stated that they would be even more motivated to accept a longer delivery wait time - with all purchases consolidated into one package - if the delivery fee was free or discounted.

Demonstrating the efforts Australian consumers are already making to be more environmentally conscious, over 45% of consumers said that after placing an order online, they would usually check to see if the retailer offered a sustainable delivery option, such as carbon offset or order consolidation services.

As online shopping delivery rates and the corresponding impact on the environment continue to rise, while at the same time the issue of sustainability continues to move to the forefront of consumer’s minds, retailers and 3PLs will need to make sustainability a bigger priority. Those retailers who don’t make sustainability a core part of their business will likely find that down the track they lose out on this potential competitive advantage and drive environmentally aware consumers to other retailers who are taking steps to make their delivery services greener.

Sustainability in the retail supply chain

Today, consumers expect the ability to choose sustainable delivery options and retailers must work to meet shopper demands. However, in order to provide both continual improvements to operational efficiencies and insights so consumers have what they need to make an educated decision, supply chains need to become more unified. For this to happen, we need more intelligence, more flexibility and more insight injected into the retail supply chain.

In the distribution centre, intelligent warehouse management systems are needed to improve the speed of workflows, which subsequently reduces the need to expedite shipping, optimise carton sizing to maximise vehicle holding capacity, and orchestrate inbound and outbound trailer flow to minimise idle time and backlogs.

On the road, transportation management systems with machine learning are needed to load vehicles more efficiently, optimise routes to drive fewer miles, and model optimal consolidation and backhaul opportunities to reduce the number of vehicles travelling.

Likewise, Order Management Systems (OMS) are critical to helping minimise split shipments and intelligently source from all inventories. This includes alternate store pickup locations like lockers to minimise travel distances, while inventory optimisation technology ensures that supply is more accurately placed where the demand will be, to reduce the amount of store transfers or unexpected replenishments. With innovations like advanced OMS, retailers are also able to navigate disruptions caused by COVID-19 by reviewing the rules of stock allocation, temporarily giving priority to in-store stock over warehouse stock, thus, freeing up any trapped inventory confined within closed stores. This is a great advantage for retailers whose physical stores have closed for lockdowns or have their business operations disrupted for other reasons.

Optimising order sourcing allows retailers to use the stock available in their entire network, wherever it is located. A smart OMS allows retailers to use the 'pool' of physical stores in large urban areas to consolidate group orders to offer more efficient and sustainable delivery options, compared to sending individual items from disparate locations. This increased delivery efficiency will also help build a stronger connection and more favourable brand perception amongst consumers. In addition to using store level inventory to ship orders to a customer’s home, it can also be deployed for click-and-collect purchases. With new fulfilment options enabled by the store, consumers can click, collect, and return goods at their own convenience, eliminating courier runs and lessening CO2 in the supply chain.

For more information on how technology can help improve the sustainability of your supply chain, please visit: https://www.manh.com/en-au/resources/research-report/sustainability