Retailers in the us have seen a decade of unprecedented change. In the last 10 years there has been a flood of new retail space, with the top 50 retailers increasing their square footage by 55 percent. And not only are there more stores, but many offer similar products. The same brand of toothpaste can be bought at convenience stores, grocery stores, drug stores, supercenters, discounters, and warehouse clubs. Denim jeans can be found at the discounters and warehouse clubs, as well as at department stores, mass merchandisers, specialty stores, and other outlets. So much consumer choice puts tremendous pressure on retailers, with many historical leaders struggling in today’s tougher environment. Of the 15 most profitable retailers in 1985, only 6 remained on the list by 1995.

To survive in such a competitive market, it is no longer enough to buy the right goods at the right cost—retailers must also get them to the right place at the right time, and with the right operational costs. Doing this well requires the best possible logistics, combining the information that determines buying decisions with the product flows that get goods to customers most cost effectively (Exhibit 1).

Many low-price retail leaders...