Retailers embracing technology to control inventory and streamline freight logistics are finding new systems enable potentially far-reaching changes in the sourcing, transportation and distribution of their goods. Reaching that potential, however, has meant shifting the retail focus away from where it has long been - on the store shelves and the consumers who shop them.

“Retailers for years have not been focused on the supply chain,” said Gartner Research Vice President Andrew White. “They’ve been focused on the order.”

Manufacturers, technology vendors and third-party logistics providers long took the lead on innovating technological solutions to retail supply chain problems because, as White said, “there’s only so much you can do with cheap labor.”

Technology has matured, earned shippers’ trust and in many cases become cheaper, appealing more to retailers working with volatile or razor-thin profit margins. Many are still developing the Internet’s potential as a low-cost, near-instantaneous tool for communicating information. Service-oriented software that takes the onus off retailers to install and maintain systems and, increasingly, data, is becoming more popular than custom-designed or off-the-shelf applications. Longer supply chains and global competition are forcing retailers to depend more heavily on technology. And for many, that means finding ways to narrow a technology gap between them and their supply chain partners.

It has to be so in the increasingly global economy.

Yet most investment in retail has gone to where it’s most visible to consumers – in getting goods on the shelves. “Serving the customer most efficiently is the biggest driver of retail innovation using technology” said David Hogan, senior vice president and chief information officer at the National Retail Federation.

Experts say manufacturers and 3PLs, which usually deal with a limited number of customers with fairly predictable demands, have an advantage in adopting supply chain technology because of the relative simplicity of their relationships. They are either getting goods made, after all, or moving them in distribution channels. "The general sense is that retailers, because they are dealing with hundreds and sometimes thousands of (relationships), they can't be as agile as their manufacturers or 3PLs," said Tom Giovingo, executive vice president of Fidelitone Logistics.

As a result, 3PLs have led the way in implementing technologies that retailers can use as a bridge to their vendors, suppliers and manufacturers, as well as within retailers’ own distribution networks.

Third-party providers are offering visibility technology, cross-docking support and, more often, advanced services such as forecasting and even product life cycle management in an effort to extend the virtual supply chain and reduce the vagaries of labor.

"We don't want the warehouse worker making decisions on the fly," Giovingo said.

Some major retailers have engaged in a "Ready to Ship" dialogue. Based on EDI and meant to supplant advanced shipping notices that some systems don't support, Ready to Ship is designed to maintain retailers' right of shipment routing, pushing slack time out of the order cycle and increasing visibility into the transportation supply chain.

Drop shipping also is growing in popularity, especially with online retailers.

Also known as distribution center bypass, the strategy involves shipping directly from source to consumer, foregoing the usual stops at DCs along the way. It requires uniform and robust systems to link often remote sources and customers, coordinated either by the retailer or, more frequently, the retailer's 3PL. It can take pressure off of stores that today have considerably less stockroom space, as retailers prefer to keep inventory where shoppers can see and buy it.

Properly implemented, drop shipping means you can treat your entire supply chain like a distribution center.

But when the sources are located in remote parts of the world without much technology infrastructure, drop shipping can be an exercise in risk management. Hogan noted some retailers have decided a stop at the distribution center can be useful to maintain quality control or necessary for services such as reticketing merchandise. Stores want to move product, he said, rather than validating inbound inventory or styles.

Drop shipments need not move all the way from source to consumer, as Wal-Mart's new Site to Store demonstrates.

Rolled out to 3,300 Wal-Mart stores in the United States starting in March, the program allows online shoppers to select from a far wider variety of merchandise than is available in stores and have their purchases shipped free for pickup at the nearest store. Wal-Mart said Site to Store saved shoppers more than $5 million in shipping charges and generated an additional $60 in purchases from about 60 percent of participating consumers while they were picking up their items.

Drop shipping has other impacts in the supply chain, perhaps most notably in packaging requirements.

Freight shipping from source to distribution centers usually involves moving large volumes plastic-wrapped on pallets and in containers, where damage is less likely than in smaller parcel and less-than-truckload shipments to stores and consumers. Manufacturers, 3PLs and retailers are consolidating drop shipments to limit the need for special packaging, but such adjustments are still being worked out.

Hogan said the most advanced retailers are implementing product life cycle management systems.

These incorporate everything from merchandise design and production to transportation ordering and distribution networks, often over the Web. They’re helpful in reducing the proliferation of stock keeping units, a bane of manufacturers and retailers who are expected to customize existing products and consistently introduce new ones.

Successful product life cycle management systems can shave days or even weeks off the time it takes to bring a product to market, Hogan said. But rather than rushing product that much faster to stores and consumers, some retailers are using the saved time to move their cargo from fast-flying, expensive air freight carriers to more economical, if leisurely ocean-going vessels.

The trade-off between saved time and saved money sometimes works in ways that defy easy prediction. As retailers see more of their revenue coming from online sales, Giovingo said they and their 3PLs are more often separating their brick-and-mortar distribution networks from their Internet channel. “The guys who wrote the book on this is Amazon.” Giovingo said. Trust in 3PLs has grown enough, he said, so that retailers are realizing they can leverage Internet-based supply chains to compete with the dot.com upstarts.

But when it comes to retail innovations, one size does not fit all. “One person’s innovation is another person’s implementation,” White said.

Innovation for a food and beverage retailer could be barcode-enabled inventory management, because so much of that sprawling industry is only beginning to recognize the rewards of supply chain technology.

High-tech companies further along the development cycle may be ready to invest in real-time visibility and voice picking warehouse technology that builds on early inventory management systems.

“Innovation is dependent on the maturity of the retailer,” White said, “and their position in the market.”

Interestingly, none of those interviewed cited radio frequency identification technology as an item of pressing current interest among retail innovators. Programs continue at the biggest retailers, Wal-Mart, Target and Tesco, but costs and technical challenges stymie widespread adoption at the item- and retail-store level.

“You would have to spend a boat load of money to know where everything is, but who cares?” said White. “You only want to know when there’s a problem.”

Hogan said the spread and maturation of supply chain technology will bring benefits not just for the biggest retailers. He manages the National Retail Federation’s CIO Council of information technology executives, about 50 companies of various sizes.

“The big companies take notes when the small guys talk about what they are doing,” Hogan said. “It’s not like it’s always a one-way street where the big guys are dictating what the small guys are doing.”*

*Excerpts from the July/August 2007 article.