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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.

Logistics in the Southeast, part 2: Supply chain challenges and opportunities

Back in February, I blogged here about a conference, "Freight in the Southeast—Moving Our Region's Business." It is increasingly obvious that the movement of goods both in the Sixth District and throughout the county is critical to commerce and the strength of the economy. Given the challenges we face domestically as a result of the Mississippi River flooding, and internationally as a result of the disaster in Japan, the timing seems right to circle back to the topic of logistics.

Earlier in the year, the Retail Industry Leaders Association (RILA) held its annual logistics conference, which it bills as "the largest single gathering of supply chain decision makers from retail and consumer product companies." Input and feedback from conference participants supplement information the Atlanta Fed receives from members of its trade and transportation advisory council, which is composed of industry leaders and experts from throughout the Sixth District.

Takeaways from the conference are too numerous to list, but a few stand out:

  • The nation's top retailers are rethinking their customer sales and delivery models. While Internet purchases are increasing as a share of total sales, retailers recognize that the way online sales are made is also in transition—from the desktop to mobile devices.
  • Growth in online sales is expected to be five times that of traditional, in-store sales and could amount to 15 percent of total sales by the end of the decade.
  • Sellers that rely on "old-school" approaches will miss out on a rapidly growing slice of the consumer pie.

The most successful retailers of tomorrow will be those who recognize the need for a multi-channel strategy (stores, catalogs, and the Web with purchases being made in person, over the phone, online via desktop, smart phone, tablet, etc.). This transition creates both challenges and opportunities. The number one challenge is the alteration of the supply chain: logistics providers become responsible for delivery of the goods ordered and may well be the only face-to-face contact the customer has with the "store." Outsourced providers of such services and the quality of their work can make or break the perception that the customer has of the shopping experience.

Shortly following the conference, I had a personal experience that made me circle back to some of what I had learned at the RILA conference. My wife and I ordered a new headboard (online) from a national merchandiser that features furniture and other housewares. The item was received damaged and because the delivery had been outsourced, requiring extensive communication with the seller's customer relations team. Ideally, this would have been resolved with the delivery folks acting as representatives for the retailer. In our situation, the ideal was not achieved—we still await replacement of the damaged item and, of course, the seller will be out the cost of the replacement and shipping. Perhaps this is an example of one of those supply chain opportunities—the creation of a seamless customer experience. Regardless of where the purchase is made (in store, via catalog, over the Internet, etc.) and how the purchase is delivered (picked up, delivered by store personnel, delivered by a third party, etc.), the future belongs to those retailers who recognize the criticality of the supply chain and incorporate the responsibility into their marketing department. The message was clear to me: the transaction doesn't conclude once the sale is made, but rather once the customer has taken final delivery of the purchase and is fully satisfied.

Opportunities exist for third-party logistics providers. As the conference emphasized, being able to contribute to an exemplary customer experience will place top service providers in a competitively advantageous position. As consumers change buying approaches and delivery expectations, successful partnerships between retailers and those transporting and delivering purchases will become critical.

By Chris Oakley, vice president at the Atlanta Fed and Jacksonville Branch regional executive