In many respects, the $4.7 trillion U.S. retail sector has led the revolution in supply chain management (SCM). Vendor managed inventory, continuous replenishment, and automatic identification are just a few supply chain innovations championed by the retail industry. Retailers recognize the critical importance of supply chain optimization for building customer loyalty and intimacy as well as controlling costs during economic downturns.

Despite the compelling links between SCM and retailing, today's SCM research continues to be general in nature. To remedy this knowledge gap, researchers from Auburn University's SCM program have embarked on an annual study of the retail supply chain. Our primary goal is to study key issues, trends, and impacts. Ultimately, we intend to identify and understand the distinctive SCM capabilities of best-in-class retail organizations.

To gain insights into these issues, 50 supply chain executives representing 45 retailers participated in telephone interviews and/or a four-page survey. Key questions focused on the role of SCM in retail organizations, supply chain strategy, performance, and industry challenges.

Role of Supply Chain Management
The executives revealed that retailers are expanding the role of SCM within the organization. In addition to efficiently fulfilling store orders, retail supply chain managers are engaging in value-adding, non-traditional roles. A majority of the participants report that SCM is responsible for or shares responsibility for vendor collaboration (75 percent), demand forecasting (69 percent), inventory allocation to stores (68 percent), and inventory management at stores (58 percent).

This increase in upstream and downstream engagement is achieved by breaking down functional silos and gaining support of top management. The participants have created strong ties at the store level and are helping the merchants learn how to leverage the supply chain when negotiating purchases. They also have great access to organizational leadership. In 64% of the participating companies, the top SCM executive reports directly to the company owner, CEO, or President. This top-level engagement is essential according to one supply chain executive: "Our supply chain steering committee includes SCM leadership, the chief merchant, the CIO, the merchandise planning executive, and the CEO."

Supply Chain Strategy
The rapid downturn of the economy caused retail supply chain executives to rethink their strategies. With sales dwindling, cost control quickly moved to the forefront in 2009, supplanting the goals of customer service and revenue growth. More than 75 percent of the survey respondents identified either cost control or a balance (cost control plus customer service) as their focal strategy moving forward. Figure 1 highlights the changing strategic focus of the retail SCM organization.

With store traffic and sales languishing, the ability to control costs is one of the best weapons to preserve profits. Retail supply chain managers are not only looking to manage fuel expenses and inventory costs, they are seeking ways to reduce overall company expenses.

This often involves breaking down functional silos to reduce procurement costs or store operating expenses, even if it places additional burden on the supply chain budget. One of the supply chain executive summed up the sentiment, stating: "Sometimes we need to incur costs within the supply chain to deliver a benefit of greater value to the company."

Supply Chain Performance
Strategies aren't successful unless they are activated and achieved. The participants monitor both supply chain service and cost metrics. Service performance indicators include on-time store delivery, in stock availability at the store, and order fill rates. Inventory turns and distribution center expenses as a percentage of sales are used to monitor cost performance. Figure 2 provides insight into the performance levels of the survey participants.

While the retailers' performance versus goals is excellent, success is a moving target. Hence, retailers constantly pursue cost and service improvement and seek out new metrics that provide an accurate portrayal of performance. To that end, the participants recognize the need to move beyond functional metrics and develop cross-company measures of success. One executive stated: "My experience has taught me that if you just think about supply chain cost, you are not taking advantage of optimizing the entire end to end process from the customer's customer to the supplier's supplier."

Industry Challenges
By all accounts, retail supply chain executives face a number of unique challenges. Gone, for now, are the traditional growth related concerns of distribution facility expansion, transportation capacity constraints, and labor turnover. Instead, macro-level CEO and CFO issues are at the forefront. Supply chain executives are highly concerned about consumer confidence, global credit, and currency fluctuations and their impact on supply chain planning and decision making.

Balancing cost and service in the face of these economic issues is an ongoing battle for supply chain executives. While retailers are pushing forward with significant reductions in inventory quantity and variety on the cost cutting side, they must not forget customer expectations of availability and selection. The risk of driving away buyers must be factored into any inventory cutback plans. One executive summed up this challenge, saying: "The real focus is to lower our net inventory without compromising the in-stock experience for the customer."

Summary
2009 has proven to be an economically challenging year for retailers. Low consumer confidence and credit challenges have led to lower revenues, reduced profits, and a record number of retailer bankruptcies. It would be easy for supply chain executives to circle the wagons and wait out the onslaught of bad news. Instead, our research revealed that many retailers are actively pursuing SCM-based initiatives to overcome today's challenges. Supply chain executives see an opportunity to demonstrate the value of SCM to the organization. As one executive put it, "this is our time to shine."

To download a copy of the 2009 report and to find out how you can participate in the 2010 study, please visit www.retail-scm.com or http://www.rila.org/supply/resources/.

Brian J. Gibson is a Professor of Supply Chain Management at Auburn University.