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Benefits of Supply Chain as a Service in Retail

Contributors: Peter Tzefronis

Retail is a vital industry that sustains communities around the world, and retail supply chain management is the heartbeat of this industry. For retailers, time is money, making supply chain management a priority for any company. Recently, we’ve begun to see supply chain as a service (SCaas) emerge as the next big trend for effective and efficient supply chain management within the retail industry. In this piece, we’ll dive into the benefits of supply chain as a service in retail and tips to assess whether your business should consider pursuing this avenue for operations. 

What is Supply Chain as a Service?  

Before we get too far into the logistics, let’s level set and define what we mean by supply chain as a service. SCaaS allows companies to generate another revenue stream on existing resources, ranging from warehouse space utilization and shipping, to supply chain management planning capabilities. In this piece, we’re referring to SCaaS as traditional outsourcing areas, such as 3PL services (i.e., warehouse and transportation and contract manufacturing services), as well as management functions like planning and purchasing. This also includes the systems and IT infrastructure that support these functions. Any or all of these can be provided under the umbrella of SCaaS.  

Some industry experts agree that SCaaS refers to outsourcing several or all supply chain management functions to a service provider. Others, like industry-leading experts at Gartner, modify that definition to exclude physical, operational activities provided by service providers such as 3PLs, distributors, and external manufacturing providers. For alignment, we will explore SCaaS with the perspective that it includes physical and operational activities. So, what does this look like within the retail industry? 

Benefits of Supply Chain as a Service in Retail  

Offering parts of an existing supply chain functionality as a service is becoming an emerging trend in the retail space. Over the next several years, SCaaS in North America is expected to grow at a CAGR of 7.5% to $7.85 billion. The effects of the pandemic have undoubtedly encouraged businesses to be creative in utilizing their assets and maintaining profit opportunities. 

There are two major categories of Supply Chain as a Service: assets, and business processes. Assets refer to the parts of your existing supply chain process, such as warehouses, trucks, production, delivery, etc. The business processes aspect involves the utilization of individuals as well as technology to oversee elements of the supply chain process for clients

Companies that have been pioneers in adopting SCaaS are Amazon, Gap, and American Eagle Outfitters. These companies have capitalized on the chance to innovate new solutions to mitigate profit loss due to the unpredictability and supply shortages during the pandemic. Amazon does this well by allowing third-party retailers to utilize its warehouses and shipping services to manage their flow of goods.Gap and American Eagle Outfitters have followed Amazon’s strategy by launching their logistics and delivery services, allowing retailers to focus on other value-add areas of their business. 

Is SCaaS Right for You? 

Although investing in your existing supply chain to expand services to third-party retailers can benefit your overall profit margin, how do you assess the market to ensure this is a viable option for your business?

  1. Choose a supply chain focus area: First and foremost, retailers must decide which areas of the supply chain they want to focus on. Picking a focus area where you already possess expertise will help minimize the learning curve. Consider your core supply chain competencies – should you focus on demand forecasting, manufacturing, inventory optimization, warehouse management, etc.? A lack of focus on core areas of strength can lead to underperforming as a SCaaS provider. The supply chain comprises of complex and distinct processes, so ensuring a level of expertise in various focus areas can be challenging. As such, evaluating your capabilities is a critical initial step. 
  2. Know your competitive landscape: It’s also critical to assess your competitors’ strengths and weaknesses. Once you’ve accurately identified what the market has to offer and what is most needed, compare your capabilities with other SCaaS providers within your market. This will ensure your offerings are in alignment with the market expectations and allows you to gauge your strategy appropriately.
  3. Define your tech platform: Finally, you’ll also need to choose an ideal technology architecture that will allow you to scale and attain profitable growth. A cloud-based infrastructure is perfect to accomplish this because it offers flexibility and scalability for digital services.  

Exploring your SCaaS Opportunities 

For retail clients who are looking to relinquish parts of their supply chain to a third-party provider, there are some concerns, such as maintaining data privacy or perhaps losing what they perceive to be a competitive advantage – controlling their end-to-end processes. However, there are also a number of benefits in this space. Retail clients seeking out SCaaS providers for their supply chain needs allow them to focus on other aspects of their growing business without the complexity and overhead of building their own supply chain network.  

If you want to explore your SCaaS opportunities in retail, our supply chain experts can advise you on the best approach and solution to meet your unique business needs. 

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Contributions from Tigist Abebe

Tags: Supply Chain Planning & Execution, Retail Trends