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Retailers: How to Overcome Supply Chain Disruption

Inside a large, modern shopping mall

In the last eighteen months the retail industry has experienced significant supply chain disruption.

Manufacturers have experienced raw material and component shortages, meaning less stock has been available.

Shipping companies have had less to ship, meaning less containers in circulation and longer shipping times.

Distribution has suffered from labour shortages in transport, warehousing and last-mile delivery causing further delays (even with stock almost in the sight of the customer).

Christmas is also coming; the season when retailers usually generate 30%-50% of their entire sales and profit. What impact will supply chain disruption have on Christmas for the retail industry? And what can retailers do to improve supply chain management, so they are resilient to disruption in the future?

Improving retail supply chain management

The good news for retailers is that, in most cases, supply chain disruption hasn’t yet translated into lower sales or profitability.

The bad news? The conditions that have previously created record results for many retailers are about to end.

Government subsidies that previously supported consumer spending, paired with restrictions on travel, hospitality, and major events - which gave consumers little option other than to direct that spend to retailers - are now being wound back.

Retailers already have a supply problem; they may also be about to face changes in demand.

However, despite the trigger for supply chain disruption in retail being the Covid-19 pandemic, the actual cause is the way that supply chains have been managed for the past 30 years.

Over that time a worldwide reduction of trade barriers, increasing shipping efficiency and the rise in quality manufacturing in what were previously third world countries, has made Asia an irresistible source of supply. In addition, just in time principles (JIT), pioneered in the Japanese automotive industry, have been applied to retail supply chains leaving little room for error when things go wrong.

There is also a philosophical dimension. Few retailers have followed Inditex, where you design supply chains to be responsive to local demand, and instead, most have used low cost of supply as a first design principle.

Should the supply chain management practices embraced by retailers for the last 30 years be abandoned in the face of the disruption from Covid-19?

Preparing for Christmas amid supply chain disruption

For many retailers, Christmas supply should already be secured. Christmas always brings peak demand, not only for stock to sell but for the shipping, transport, warehousing and labour resources to get it to market.

Retailers may have less stock than they would like but consumers are cashed up and feeling positive, which makes for what should be a great retail Christmas.

Now is the time for retailers to look at their supply chain management practices so that they are better prepared to deal with the coming months. 

Information has always had the power to make supply chains more responsive and resilient. The adoption of computerized point of sales systems and barcode scanning created a step change in stock availability for customers and safety stock levels held by retailers in the 1990’s.

Modern data capture, storage and analysis technology can now give retailers more information about the supply chain than ever before. Deploying IOT, Cloud and AI/ML in the supply chain increases the speed and accuracy of demand forecasts, which in turn, can be used to optimize the placement of inventory, ensuring available stock always gets to where it can be of most value.

The value of information multiplies when it is shared between collaborative supply chain partners.

Supply chain collaboration has been shown to lead to increased responsiveness, increased sales, lower overall inventory and reduced costs. The value of collaboration multiplies the more partners become involved.

Up until recently, supply chain collaboration has been the domain of businesses - but now consumers, armed with their smartphones, are also beginning to collaborate. Consumers are collaborating with retailers in the design of products, financing manufacturing by paying in advance and easing the last mile burden by picking goods up from retail shops, from lockers or installing location-aware apps to minimize delivery fails.

Adding consumers to the set of collaboration partners in the supply chain multiplies its positive effects.

Conclusion

This year’s retail Christmas may be slightly different, but retailers can protect themselves from future disruption by reviewing the way they manage their supply chains.

This does not mean throwing out the last 30 years of retail supply chain orthodoxy but looking at some adjustments to improve responsiveness and resilience.

Improving the information flow using modern data capture, storage and analysis technologies, then multiplying those benefits by increasing and expanding supply chain collaboration, are great places to start.