Time to Rethink Your Retail Supply Chain Playbook

Read more on the Coronavirus and how it is affecting suppliers here. by Mike Brown VP, Business Development May 11, 2021 The current retail landscape is full of extraordinary challenges that have opened the door for competitive advantage. Retailers that embrace this seismic shift and adapt can emerge successfully. This past year, a large % of retail supply chains have been negatively affected by one or more of the following:
  • Transportation issues such as globally reduced ocean vessel schedules and container availability.
  • Cost increases almost across all commodities from food to lumber and steel.
  • Shortages in raw materials/parts. Possibly the most significant example is the microchip, which is affecting the manufacturing of autos, electronics, appliances, and more.
  • Increased or shifting demand. Massive increases in spending on building materials, garden and yard products, electronics, home office, and appliances have been countered by huge decreases in apparel and automotive sectors.
  • Workforce shortages and limitations. Some directly related to the pandemic with temporary shutdowns in factories and warehouses, others caused by gaps in industry trends vs available skill sets.
Retail inventory planning methods had evolved from “stack it high and watch it fly” to a much more controlled and scientific approach in recent years. This control allowed for better use of inventory resources particularly as business demand was shifting to include online purchasing, potentially filled from central warehouse locations. Optimizing inventory to maximize turnover and Return on Inventory Investment (ROII) was an ongoing focus yet limited to a small number of distribution channels and touchpoints. Disruption in 2020/2021 drastically changed both customer behavior. These changes need to be considered in end-to-end supply chain planning:
  • Less time in physical retail stores
  • Home Delivery. Ship from warehouse/Ship from store
  • Order online, pick up in-store
  • Order online, pick up curbside
  • Mass retailer’s vs boutique and “buy local”
  • Manufacturing companies and brands selling directly to the consumer, bypassing the traditional retail channel
  • Selling touchpoints through social media such as Instagram connecting influencers and products directly to consumers.

Examples of how retailers are already adapting to customer behaviour changes and supply chain risks:

Walmart, over the next decade, have said it will spend $350 billion on merchandise made, grown, or assembled in the U.S., reducing CO2 emissions and sourcing products closer to where customers live. They are also expanding their in-home service, delivering directly to customers’ fridges and pantries. Amazon is adding multiple fulfillment centers across North America to shorten the lead time for last-mile deliveries. Bricks and Mortar touchpoints continue to offer balance including the Whole Foods division, now adding automated checkouts. Nordstrom recently launched “Livestream” shopping in the US. These are online selling events where customers can buy products and participate in a live chat. Bed, Bath and Beyond, Whole Foods, and Walmart continue to convert some underperforming retail stores to online fulfillment centers or “dark stores”, while others like Target are filling orders from typical retail stores. As the chart below shows, planning points across the supply chain have increased and retailers need to stay on top of dynamic shifts. The standard end-to-end supply chain planning model has several additions to be considered. As retailers turn to a new playbook to address the complexity of new fulfillment models, they need to be more aware and agile than ever. Integrating checkpoints and mitigation plans to sourcing, production, and transportation is key.
FocusStandardThe New Playbook
PlanningFinancial Inventory Turns Inventory Cost Identify Vendor Internal focus Demand by Channel Demand by Region Lost sales risk Identify Tier 1 Vendor Identify Tier 2 Vendor Partner focus Collaboration
SourcingLeft to the vendor to manage Parts origin Raw materials Component costs Availability risk Lead time risk
ProductionLeft to the vendor to manage Capacity Scheduling Costs Workforce Lead time risk Frequency Pack size Safety stock
Transport (inbound)To shipping port Consolidation Port to port Landing port to DC Capacity Scheduling Costs Workforce Checkpoints Frequency Lead time risk
Warehouse DCRetail capacity Online capacity Turnover Space optimization Flexible capacity Cross dock Picking options Regional demand DC transfers Safety stock
Transport (outbound)To stores To online customer Scheduling Costs Workforce Next day delivery Same day delivery Frequency Direct to customer
Retail + OnlineMinimum display units Back room units Sales coverge units Promotional boosts Online demand Pick up in-store Pick up curbside Ship from store Next day delivery Same day delivery
CustomersBuy in store Buy online Online, pick up in-store Online, pick up curbside Online, ship from store Next day delivery Same day delivery Direct to customer Less time in-store Less impulse add ons