Inside retail supply chains

Mattress maker Purple Innovation realized a “significant breakthrough” in Q2 2024 gross margin from multiple supply chain improvement initiatives, COO Eric Haynor said on an Aug. 9 earnings call.

The company’s efforts have included diversifying its supplier base, optimizing its logistics network, implementing a systematic planning capability and improving manufacturing efficiency.

Focusing on improving the company’s gross margin has been a priority for Purple’s supply chain management team, Haynor told sister publication Supply Chain Dive in an interview. The mattress maker has been pulling out of a financial slump this year, with net revenue up 2% year over year in Q2 while its gross margin rose to 40.7%, up from 30.1% in Q2 2023.

Diversifying the supplier base

Purple started accelerating its supplier diversity efforts last year, shifting from a sole supplier model for materials such as the chemicals used in the manufacturing of its GelFlex Grid.

Purple analyzed what Haynor calls “the should cost” by asking determining the proper price for materials based on marketplace metrics such as commodity indexes. This was particularly critical when evaluating chemical suppliers, as Haynor’s team noticed chemical commodity indexes were going down but supplier costs were not.

When the company evaluates quotes from suppliers for its manufacturing chemicals and other materials, it also makes sure to assess each potential candidate’s qualifications and product quality, according to Haynor.

“The primary thing is, you need to make sure you have competition battling for your business, and that comes down to having more than one supplier for the items,” Haynor said, noting that having a more diverse supplier base has also helped Purple improve its resilience.

Altering its supplier base has not had a negative impact on Purple’s supplier relationships, Haynor said, noting that there are some forms of contractual relationships in place wherein the company makes volume assurances.

“So I haven't found any problems in having those discussions. And usually suppliers are happy to fight for the business, earn the business, and they're really happy when they win it,” Haynor said.

Purple has also evaluated its internal capabilities through a “make versus buy analysis,” Haynor said. This process has led the company to vertically integrate and bring sourcing for pillow assemblies in-house, for example.

“We're not asking our suppliers to lower their price; we're changing the supply chain to take cost out,” Haynor said.

Purple is still working on supplier diversification and expects its efforts to deliver further savings later this year, Haynor said on the Q2 earnings call.

Even as it benefits from reducing its reliance on single suppliers, Purple is still finding the right balance in its production footprint. The company announced plans to close two manufacturing facilities by Q1 2025 in August. Despite the closures, Haynor said the company’s deployment of lean manufacturing across the organization has driven efficiency improvements.

Fill the truck

Optimizing its logistics network has been an exercise in simplification for Purple, according to Haynor.

“Where you save money in logistics is by filling up the truck and driving less miles,” Haynor said.

To cut costs and mileage, Purple introduced what it calls its scheduled delivery program. Instead of shipping individual orders via an less-than-truckload carrier, the company now takes multiple orders and combines them into a single trip with multiple stops.

Haynor said the program “has been hugely successful,” adding that the company’s delivered in full on-time performance is now hovering near 95%.

Haynor also said that Purple has evaluated its partial network to improve shipping efficiency and reliability. For example, it may combine two sets of sheets into one box rather than shipping them separately.

Taking things a step further, Haynor said the mattress maker has changed its inbound network so that product coming from overseas goes straight to destination warehouses, which ship to customers directly.

“There's a ton of little pieces that you do with optimizing your logistics network to figure out what the best way to get to your customer at the lowest cost,” Haynor said.

Pushing planning performance

For years, Purple conducted its supply chain planning on disconnected spreadsheets, so what it bought didn’t always line up with what it expected to sell, according to Haynor.

To solve the issue, the company deployed material requirements planning (MRP) modules in its existing enterprise resource planning (ERP) system. The nine-month project required extensive data collection and testing, but now Haynor is more confident that the company’s forecasts translate into production and purchasing plans.

“It's been a big win for us,” Haynor said. “And this is the sort of thing that is transformational for a small company.”

Since the system was deployed in May, the company has reported lower inventory and higher levels of service, according to Haynor.

“The best part is, is that the team can now pull the levers,” Haynor said. “They can decide what their inventory is. Instead of the inventory being an outcome, what they did without information, they're setting parameters that allow us to determine what the outcome is.”

Amazon spent the past two years absorbing real estate space across the United States. It built new fulfillment centers to meet ballooning demand. Now, its breakneck pace may soon be slowing as it turns its attention to other nodes of its supply chain — including heavier investments in transportation.

A massive real estate footprint is a critical aspect of Amazon's strategy. Operating its own fulfillment centers, sortation centers and delivery stations provides greater control over the supply chain, allowing the company to deliver on the shipping speeds it promises Prime members.

"Shipping speed is the growth driver in e-commerce," said Shipium co-founder and CEO Jason Murray, former vice president of supply chain and retail services at Amazon. "Prime submitted that as the number one fact. You can do whatever you want with marketing, checkout, one-click (ordering), whatever it is — speed is what drives everything."

Amazon's real estate footprint is a case in point. The e-commerce giant nearly doubled its operations capacity in the past two years to keep up with demand, CFO Brian Olsavsky said on an earnings call in February. Fulfillment center growth has been a large part of this equation — Amazon grew its number of U.S. fulfillment centers by 30% in 2021, according to data from supply chain consulting firm MWPVL International as of Feb. 16.

But investments alone have not been enough for Amazon to reach its desired shipping speeds. One-day delivery levels for Prime services are not yet back to where they were pre-pandemic. So now, Amazon is looking closer at other operational investments to boost its shipping capabilities.

"We see [fulfillment center spend] moderating," Olsavsky said, adding future growth will probably match other sides of the business.

Experts say the development was likely after the initial e-commerce boom fueled by the COVID-19 pandemic cooled off.

How Amazon's strong fulfillment footprint meets demand

A flood of online orders caused retailers to adjust – or accelerate – their logistics plans. Foot traffic at brick-and-mortar stores declined as the pandemic took hold and many consumers opted to shop more often online. In June 2021, Olsavsky said Amazon had been playing catchup to match supply with demand – fulfillment costs as a percentage of net sales climbed from 15.2% in 2020 to 16% in 2021, according to Amazon's 10-K.

Adding more facilities in more markets allows Amazon to grow its capacity while positioning inventory closer to customers for faster and less expensive delivery. Other companies in the e-commerce space are doing the same.

"The e-commerce share of leasing has really steadied since last year, but it's still higher than pre-pandemic levels," said Heather Belfor, director and head of U.S. research at Prologis, which has Amazon as its top customer. "Amazon is still obviously a major player within the e-commerce space, but it's very diverse because users need more logistics space across the supply chain."

Walmart, for example, is opening its own fulfillment centers and investing in an automated supply chain as it pursues more subscriptions for Prime competitor Walmart+. And Target has four more distribution facilities in development "with plans for several more to follow," Executive Vice President and COO John Mulligan said on the company's Q4 earnings call. The retail titans also have the ability to use their brick-and-mortar locations scattered throughout the U.S. for omnichannel fulfillment, a critical development as companies try to limit their delivery costs for online orders.

Meanwhile, Amazon's slowdown in its fulfillment center buildout appears to already be occurring. Per MWPVL data, the fulfillment center growth rate is currently set to be 22% in 2022. Marc Wulfraat, president and founder of the firm, noted that figure is affected by many existing projects being pushed into 2022 due to lengthy supply lead times.

Still, among e-commerce platforms, Amazon is unmatched, said Jean-Paul Rodrigue, a professor of Global Studies and Geography at Hofstra University who researches freight distribution. Its domestic distribution infrastructure also towered over Walmart and Target's combined footprint by roughly 173 million square feet, per MWPVL.

"You have that (omnichannel) competition, but it's essentially Walmart offering simply an expansion of its services — that's not the same thing," Rodrigue said.

Amazon gears up to invest in transport

Although Amazon is easing its fulfillment center growth as competitors try to bolster their own distribution capabilities, other areas of its operations are still receiving plenty of attention. Olsavsky hinted at "additional levels of investment" in transportation capacity coming in 2022.

With more people and vehicles moving goods, Amazon can deliver to rural areas of the U.S. without calling on the services of UPS and the Postal Service, Wulfraat said.

"We think that's what their goal is, that they want total control over their destiny when it comes to delivery," Wulfraat said. "We think that ultimately they do want to eliminate UPS and USPS as partners. There's certainly a lot of clues that lead us to believe that."

Greater transportation control would help shield Amazon against rising costs. Amazon reported higher third-party carrier costs in Q4 — an incentive to invest in owned capacity.

Observers say Amazon could have additional long-term pursuits. The company could build more delivery stations, in which customer orders are prepared for last-mile services. It could explore investments to insulate itself further from global supply chain disruptions. Or, it could find ways to penetrate further into a difficult grocery market.

"Everyone buys food, everyone buys a lot of it," Murray said. "They're going to have to find a way to continue to be relevant in that space. I think Whole Foods has been okay, but it hasn't moved the needle."

One thing company observers agreed on is that Amazon isn't satiated with its current fulfillment network, and "moderating" is a relative term for a company that has invested in and grown its fulfillment network at an unmatched rate to set itself apart from competitors. Olsavsky even noted on the Q4 earnings call that fulfillment center spending could tick up once again in the future.

"I think they're slowing down or decelerating," Wulfraat said. But they haven't stopped. "That's certainly not the case."

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By Blue Yonder

Category management has reached an inflection point. In a volatile context characterized by rapidly shifting customer demands and expectations, rising prices, strained margins, ongoing supply chain instability, and increasing fulfillment complexity, getting the right product into the right place at exactly the right time is more difficult than ever. But is applying Band-Aid point solutions to aging tech stacks the way forward for this critical discipline? Or is category management in need of a reset?

Category managers are under pressure

Category managers today are operating amidst a host of complex market forces.

Customer shopping patterns are changing. Shopping frequency, basket size, basket composition, and shopping channels are dynamic and ever-shifting. The rising cost of living means consumers are trading down to private-label products to save costs, with over 95% of consumers planning to change their shopping behavior if inflation continues.

Shopping channels are changing, too. Last year, 75% of global retail executives surveyed moved to invest in hybrid shopping experiences, which means stores are now required to support online and hybrid shoppers through in-store picks while maintaining enough stock to serve in-person shoppers.

Adding to the challenge, an ongoing skills crisis means labor is scarce and more difficult to retain.

• According to 2024 statistics from the United States Chamber of Commerce, the retail industry experiences the third-highest quit rate of all major sectors surveyed.
• A recent report found that 64% of hourly workers planned to quit their jobs between October 2023 and October 2024.

This skills crunch is impacting in-store execution rates, with some statistics placing planogram compliance at less than 50% at a cost of billions across the retail sector.

Without good execution, all the manual effort required by category managers to design, optimize, and load planograms is reduced to nothing short of “busy work”.

Additionally, elevated pressure to meet the need for go-to-market speed, localization, and cluster-based category management requirements is spreading an already thin labor force even thinner.

Category managers are forced to navigate these complexities and a chronically disconnected category review process with yesterday’s tools: labor-intensive manual effort, and lightly integrated category management processes and tools often deployed through a best-of-breed approach. While category management is the heart of any retail business, it remains one of the most technologically underserved areas of operations. The situation is fast becoming untenable. Something has to change — but what?

What’s the path forward?

To solve these issues and bring category management up to date with the level of efficiency and accuracy currently being achieved in other (often less critical) operational areas, there are three primary options open to the retail industry:

1. Compile a patchwork quilt of add-ons and customizations to connect key capabilities, applying metaphorical Band-Aids to ever-aging tech stacks. While this approach may deliver some of the desired results in the short term, it’s difficult to maintain, risky to deploy, and not guaranteed as a long-term fix.
2. Move toward the growing base of startups offering attractive, seemingly cutting-edge category management solutions. These solutions apply exciting levels of innovation to the function, and as such they hold a strong appeal. However, the inevitable outcome is that retailers end up relying on point solutions more and more, making it increasingly difficult to connect the entire supply chain successfully. Instead of a consolidated portfolio of technologies working together in unison, retailers find themselves managing more and executing less, and the outcome is the opposite of innovation.
3. (The most effective option) Start with a solid tech foundation and make it significantly better by deploying the right tools in the right places to create a connected, automated category management system. By injecting AI into core adaptive workflows, sharing data, not files, and deploying automation, an integrated category management solution can help retailers move from the siloed, bunkered systems that are currently compromising the retail experience to the seamless, optimized world of continuous category management.

A case for continuous category management

Successful category management is a constant trade-off between space and assortment, speed to market, and accuracy. To get it right, category management needs to be more tightly integrated with demand and replenishment functions to deliver faster, more effective, customer-focused category management decisions.

Historically, the category review process has been disconnected, with siloed, non-responsive data passing from one function to the next, from the insights team along to the supply chain department, with little to no feedback or opportunity for optimization.

Blue Yonder’s approach

Blue Yonder’s vision is continuous category management, where intelligent automation, shared data and seamless connectivity between stakeholders deliver more agile, more responsive category management decisioning and comprehensive optimization of both space and assortment from unique store to unique store.

Building upon a solid, tried-and-tested foundation, Blue Yonder’s live suite of category management solutions allows retailers to simplify and centralize category management processes and achieve local precision at speed, while growing at a tailored pace.

The tech is tried and proven, and the results speak for themselves. Dr Pepper Snapple Group, for example, achieved a 99% improvement in category management accuracy, and a 15X reduction in labor hours required to maintain and update planograms.

Across the board, Blue Yonder’s category management model improves category manager efficiency by up to 50%, increases sales by up to 5%, reduces out-of-stocks by up to 25%, and increases profits by up to 20%.

Today’s shopper demands more. Yesterday’s tools cannot deliver it. It’s time to invest in Blue Yonder’s next generation of innovative category management tools, unlocking unprecedented efficiency, increased profits, and exceptional customer experiences in the process.

La-Z-Boy is consolidating its cut and sew operations in Mexico to optimize costs, President and CEO Melinda Whittington said in an August earnings call.

The furniture maker said in a recent securities filing that it would permanently close its leased cut and sew facility in Parras, Mexico, by the end of Q1 of fiscal year 2025, which ended July 27.

The furniture maker is also shifting upholstery production from Ramos, Mexico, to its other upholstery plants. Products will return to Ramos to be cut and sewn, per the filing.

The focus on plant efficiencies in Mexico is part of La-Z-Boy’s larger strategy to build a more dynamic supply chain, according to Whittington. She added that the furniture maker considers its North American manufacturing footprint as a “key differentiator” for production.

“As we mentioned in last quarter's call, we are prudently managing the consolidation of our cut and sew operations in Mexico to optimize costs, while ensuring no service disruptions,” the CEO told analysts. However, there have been some delays related to the work La-Z-Boy is doing in Mexico, particularly when it comes to securing labor from a quality and productivity perspective, SVP and CFO Bob Lucian said during the call.

More than half of the company’s cover materials are purchased from suppliers in countries like China and the U.S., before being cut and sewn in its Mexico facilities, according to the securities filing. As of April 27, La-Z-Boy operates four facilities in Mexico to support its “speed-to-market and customization strategy.”

La-Z-Boy has also looked to optimize staffing levels across the company’s Mexico operations. The furniture maker's number of full-time equivalent employees dropped from 10,500 at the end of fiscal year 2023 to 10,200 the following year, per the filing.

The consolidation comes after active efforts to build its production network in Mexico. In 2022, La-Z-boy expanded its North America operations with several new factories in the country after having to make structural changes to its supply chain to shorten lead times and tackle backlog. At the time, the furniture maker had opened at least two leased manufacturing plants in Mexico.

Best Buy customers can now access live tracking of product deliveries and in-home installation services. The new features are enabled by AI technology, the consumer electronics retailer said in a Thursday news release.

The tracking feature is available for large items, like big-screen TVs and refrigerators. On the day of a delivery, once a driver begins their route, the app will use real-time traffic data to provide views of drivers along their delivery route.

When a customer’s house is next on the list for a delivery or installation, Best Buy says the tracking map will zoom into a street-level view, providing an up-to-the-minute estimated time of arrival. The app will send a notification just before the driver arrives.

Best Buy is among a growing list of retailers — Amazon and Walmart among them — that are using AI in some capacity to enhance the customer-facing side of the shopping experience. 

“Our new live-delivery tracking experience removes the frustration so many of us have felt when we’re given a window of time to wait around at home for an appointment or a larger delivery to arrive,” Brian Tilzer, the company’s chief digital, analytics and technology officer, said in a statement. “We know our customers’ time is extremely valuable, and we’re proud to bring a level of convenience to technology delivery and installation that nobody is currently providing.”

Best Buy joins other retailers, like Target, that are also putting AI tech into employees’ hands to enhance customer support or supply chain operations. In April, the company announced a partnership with Google Cloud to introduce an AI-powered virtual assistant this summer. 

The tool will allow customers to troubleshoot product issues, manage deliveries and manage their Best Buy memberships. AI will also be used to give customer service agents real-time recommendations. In May, Best Buy said it was updating its mobile app to offer more personalization, including personalized video content. 

And as part of a brand refresh announced in July, the retailer also leaned into personalization features. The initiative includes more in-store experiential spaces and a new hologram spokesperson. The company also plans to add more in-store staff in its computer, appliance and home theater departments.

Consumer electronics sales rose 7.2% in July after months of softness, the U.S. Commerce Department reported Thursday. Best Buy has felt the impacts of that softness. “I think we're just seeing a little bit more trade down, a little bit more purchasing for duress, and certainly much more value hunting,” CEO Corie Barry said during a June investors’ conference.

“So I think you're just continuing to see a consumer that slowly, way more slowly than any of us expected, continues to pull back and make very explicit decisions based on value and perceived value of whatever the items are that they're looking for,” Barry said.

Under Armour on Monday announced it would close one of its primary distribution centers, in Rialto, California, as part of a broader restructuring plan. The retailer plans to exit the facility by March 2026 and incur an additional $70 million in restructuring charges as a result, according to a company press release.

Under Armour first introduced the restructuring plan in May, with an initial cost target of between $70 million and $90 million. With the distribution center closure, the projected charges associated with the plan have now basically doubled, to between $140 million and $160 million. That number includes $37 million in employee severance and benefit costs, though the company wouldn’t confirm to Retail Dive back in May how many employees were being laid off.

The retailer anticipates about two-thirds of the total charges to be incurred by the end of the current fiscal year -- and lowered its full-year outlook as a result. Operating loss, which was already expected to land between $194 million and $214 million for the year, will now hit $220 million to $240 million. Projected loss per share for the year also worsened.

"We continue to proactively identify opportunities to optimize our business to help create a better and stronger Under Armour," Chief Financial Officer David Bergman said in a statement on the news. "As we work to reconstitute our brand and increase our financial productivity over the long term – optimizing our supply-chain network will make us a more efficient, uncomplicated, and agile company."

In another aim at simplifying the business, CEO Kevin Plank in May said the brand would cut its SKU count by a quarter over the following year and a half, trim down on its use of outside consultants and agencies, and reorganize its product and marketing teams. Plank took back the chief executive spot in April, barely a year after former CEO Stephanie Linnartz had started in the role, and has since talked extensively about how to get the brand back on track.

That includes significant investments in marketing and product development, with Plank in the brand’s latest quarter admitting the brand had begun “selling on the logo and a price tag” instead of telling a more impactful brand story. Revenue in the most recent quarter was down 10%, and the retailer swung to a $305 million net loss.

The retailer has also revamped a meaningful amount of executive positions, including naming a new chief product officer, head of the Americas, executive vice president of brand strategy and vice president of commercial for EMEA in this year alone. Last year, the company also tapped John Varvatos as chief design officer, among other changes.

Amazon is not renewing leases at its warehouse facilities in Irvine and West Sacramento, California, Amazon spokesperson Sam Stephenson said in an email.

In Irvine, Amazon will lay off 162 employees as a result of the closure, according to a California WARN Notice processed Sept. 9. The closure is slated for Nov. 7.

Meanwhile, 159 employees will be impacted by the closure in West Sacramento, effective Oct. 30, per the WARN notice.

The spokesperson attributed the closures to Amazon’s consistent network evaluation to “make sure it fits our business needs” and improve employee and customer experience. Stephenson added that the company aims to help impacted employees find new opportunities within the company, including nearby fulfillment centers.

Amazon has been closing sites, enhancing existing facilities or opening new facilities to optimize its network. After a surge of facility openings during the pandemic, Amazon has advanced significant cost-cutting efforts to remove the excess capacity in its fulfillment network.

Sam’s Club announced Thursday plans to open two new distribution centers outside of St. Louis and Minneapolis early next year. 

The upcoming St. Louis facility will serve as a distribution and fulfillment center while the facility serving the Minneapolis area will be a multi-purpose center. 

Sam’s Club now has three distribution centers planned to open in early 2024, including one in Oklahoma City, Oklahoma.

The two newly announced distribution centers build on the Walmart-owned retailer’s multi-year growth plan aimed at improving end-to-end capabilities.

The St. Louis distribution center, scheduled to open in January, spans 370,000 square feet and is located at 5710 Inner Park Drive in Edwardsville, Illinois. The facility will create over 100 jobs and hiring for hourly associates will begin this month. 

Sam’s Club’s Minneapolis-area center, located at 7400 Hentges Way in Shakopee, Minnesota, is slated to open in March. The facility is 365,000 square feet and will employ more than 80 associates with hiring already underway.

“We’re designing our supply chain network to strengthen our omni-channel experience and increase efficiencies and delivery speed to wherever our members decide to shop with us and receive their products,” Joseph Godsey, Sam’s Club’s senior vice president of supply chain, said in a statement. 

In August, Sam’s Club announced plans to open a 300,000-square-foot multi-purpose distribution center in Oklahoma City in early 2024.

In January, Sam’s Club announced plans to modernize its supply chain through new distribution and fulfillment centers in addition to opening more than 30 new club locations over the next few years. 

However, despite its plans to open five distribution centers in 2023 starting with a facility in Georgia slated to open in Q3, Sam’s Club has not formally announced whether the center is operational or if other distribution centers have opened this year. 

A Sam’s Club spokesperson did not respond to a request for comment about the status of its distribution centers by press time. 

In addition to opening new facilities, Sam’s Club said in January that it aims to retrofit numerous existing distribution centers over the next several years to bolster its physical and digital capabilities as well as launch facilities with “state-of-the-art automation and robotics.”

Hasbro has made efforts to improve its end-to-end planning capabilities, bringing aged inventory down to “historic lows,” EVP and CFO Gina Goetter said during a Q2 2024 earnings call.

The EVP noted the toy and game company’s upgraded planning proficiencies have helped it better determine where to source inventory according to customer demand.

Despite shrinking its product backlog, Hasbro will ensure “suitable inventory levels to support sell-through for the holidays,” according to Goetter.

Hasbro has been undergoing a supply chain transformation recently, with Goetter crediting its “major wins” in Q2 2024 in part to Stephanie Beal, who was promoted to chief supply chain officer in July.

The toy and game company did not go into details regarding its end-to-end planning improvement and did not respond to a request for comment by the time of publication. However, during a Q1 2024 earnings call, Goetter said that Hasbro implemented a major inventory overhaul last year that benefited the company during Q4 2023.

“Also, within our supply chain, we are building new capabilities within planning and forecasting to ensure that inventory levels, both owned and retail, remain within the desired threshold,” Goetter said during a Q4 2023 earnings call. “We made significant progress coming out of 2023 and these updated processes and tools will ensure that we maintain a healthy inventory position”

The toy and game company focused on reducing logistics costs last year, Goetter told analysts during a Q3 2023 earnings call. She added that this year Hasbro planned to target procurement and manufacturing.

To reduce complexity, Hasbro is focusing on efficient SKUs and reducing costs during product design to generate savings and improve the profitability of its toy business, Goetter said in Q3.

For example, Hasbro planned to release a lower cost version of Jenga, based on a “fresh design for cost model,” which the company is replicating throughout its production line, CEO Chris Cocks said.

In Q3 2023, Cocks said that Hasbro’s supply chain alone was driving roughly $100 million of the year’s expected savings, with logistics and production costs down to the mid-single digits.

“Our revamped supply chain is helping us get smarter on inventory management,” the CEO said at the time.