Supply Chains: How to navigate the era of unpredictability
The last couple of years has seen the supply chain hit hard, with challenges piling up.
From the COVID-19 pandemic, disruptions to the Suez Canal blockage and HGV driver shortages, delays receiving goods from ports and slowed down circulation of containers - all these factors have caused delays, unpredictability, and steeply higher shipping costs.
The odds have been fully stacked against the supply chain.
Such a perfect storm has caused a sharp decline in levels of stock available, which ultimately impacts upon the customer experience and the bottom line for retailers, who have been hit particularly hard since the beginning of 2020 with lockdowns and staff shortages.
What initially set out as temporary changes within the global supply chain, soon became a longer term reality. When faced with a temporary challenge - i.e. the pandemic - retailers adopted and managed their business to stay viable while waiting for the situation to go back to ‘normal’.
However, when faced with a structural change, as we face now, the retailers need to look for longer term solutions, which may include restructuring their operations to adjust to the new circumstances, for the long-term.
Analysis of the UK’s retail position from the Office of National Statistics (ONS) highlights that the challenges referenced to earlier caused significant changes in consumer shopping habits.
Retailers need to take notice of this data; supply chains can be expected to re-align and become smooth again one day, but the consumer behaviour shift that resulted from the last few years’ upheaval may be permanent.
Restrictions on movement meant that online shopping replaced a considerable portion of traditional purchases from high street stores, and stress on the supply chain made matters worse as it caused problems with retailers’ stock levels. At least some of the customers who tasted the online option, won’t come back to the high street.
Ultimately, this left retailers unsure of their supply and demand, as retail industry stock levels only grew by £380 million for Quarter 3 2021 compared to £2,361 million in Quarter 3 2020.
This is a global issue, with a US strategic think-tank, Geopolitical Futures, recently publishing an analytical piece titled America's Broken Supply Chains.
It pointed out that when Covid emerged, the industry expected a slowdown in demand and a decline in production. However, in reality, the demand pattern has just shifted, resulting in demand pressures for recreational goods, motor vehicles, furniture, and appliances; obviously, at the expense of other types of goods.
This caught many unprepared, resulting in container costs skyrocketing from USD 2,000 to 12,000 per container and a massive vessel backlog (100+ days). Clearly, running a retail business in such an environment must be difficult. Inventories to sales ratios dropped from a typical 1.4 times cover to 1.2 and this led to out-of-stocks in some areas.
Prolonged public health restrictions, repeatedly relaxed and then tightened as the regulators reacted to the emerging situations, disrupted movements of goods and materials, impacting manufacturing, shipping and retail. Shifting demand patterns, inflation, accelerated retirements, and fears stretched the labour market to its limits, and at present 60% of retail job vacancies in the US remain unfulfilled.
We have written earlier about what such shifts mean for retailers and Geopolitical Futures' analysis reinforces the point about the permanent nature of the change. We have entered a long period of uncertainty, exacerbated by the conflict in Ukraine and its global repercussions.
The advice for retailers remains unchanged: the days of reliable and responsive supply chains have passed, and retailers must redesign their processes to hold more inventory throughout their enterprises. This means higher investment in operating capital and higher running costs. Obviously, we then need to talk about the elephant in the room: we must expect considerable retail price increases and this too will shift demand patterns and consumer behaviour.
Retailers should consider three key measures to help overcome the supply challenges faced, to stay in stock and ensure they can still provide what their customers want, when and how they want it.
- Harness the benefits of connected retailing
Connected retailing helps retailers to handle the shift in customer buying behaviour, with less stress on available resources. This can be illustrated by the introduction of customer order fulfilment with orders shipping directly from stores. This delivery method is being adopted by a growing number of retailers thanks to the many benefits it offers, such as increasing the available stock pool, reducing workload in distribution centres, and moving the fulfilment location closer to the end consumer.
Such use of stores as micro-distribution hubs allows retailers to get closer to their customers than ever, enabling rapid order fulfilment and delivery when required, helping to meet customer expectations and avoid disappointment.
Shipping of customer orders from stores not only reduces pressure on traditional warehouses, where resources may be stretched at times, but it allows for larger volumes of inventory to be collectively carried by the retailer. It also brings other efficiencies, such as allowing the retailer to make better use of store team members’ time during quieter periods due to the demand shifting to online.
- Gain a holistic view of your supply chain
As the times of predictable unpredictability continue, retailers should ensure that they have intimate knowledge of their entire supply chain, to ensure they have a solid understanding of their supply chain’s strengths and weaknesses.
By having visibility of supply chain performance, from sources of supply right through to various sales channels, the knowledge and insight gained will help the retailer play its part to make supply chains better, faster, and cheaper. This approach will also help retailers and their partners find ways of improving sustainability throughout the whole supply chain.
A collaborative relationship with supply chain actors will also facilitate innovation, crucial for achieving growth and improving resilience. Ultimately, this may help to lessen the impact of future disruptive events, enabling retailers to build inherent supply chain resilience which will not only help to keep the business alive, but will also increase the reputation of a retailer, which is a key factor in customer choice in uncertain times.
- Be smart with your warehouse
Through the smart use of technology, retailers can support their ordering and supply chain management by gaining a unified and real-time view of inventory across stores and distribution centres, which will help to maximise the benefits connected retail brings.
However, taking this a step further, retailers should consider having increased stock holding, to move away from the legacy just-in-time (JIT) inventory management model. Just-in-time relied on forecasting as accurately as possible and on reliable services - which in these predictably unpredictable times, cannot simply be achieved.
Retailers who can maximise the benefits of technology, whilst ensuring they deliver on their customer promises and providing consistency, will ultimately reap the rewards of brand loyalty and will still be here in the years to come.
Are we going to see more stability anytime soon?
No-one knows for certain how long the problems with supply chains will last, as new disruptions continue to transpire. Irrespective of current and potential future scenarios, the current challenges with supply chains are themselves becoming the ‘new normal’ and continue to threaten a retailer’s brand reputation.
However, by carefully examining existing resources, scenario planning, and using technologies to drive greater efficiencies, retailers can make permanent improvements, increasing business resilience in the face of adversity.
The journey towards easier retail must continue, even in these ‘interesting’ times!