Halfway through what was supposed to be a recovery year, retailers are still struggling
Long gone are the days of panic buying and empty shelves in grocery stores as society grappled with the early days of the pandemic. Most retailers around the world have since regained their footing by increasing capabilities and nimbly adapting to new methods of consumer behaviour and omnichannel delivery. Yet even with the advancement in the digitalisation of their business, retailers face continued product shortages that are impacting sales today and may continue through 2022.
State of supply chain
Supply chain operations in the last decade have become increasingly sophisticated, with retailers collaborating and sharing data at higher rates in order to have products arrive in a warehouse or store based on just-in-time objectives. Not only have retailers been able to orchestrate deliveries in a tighter window of time, but they have also become leaner by identifying and eliminating slack in the supply chain, ultimately reducing time. With no leeway for error, supply chains have been less flexible and less able to recover due to unforeseen issues, weather impacts or other disruptions.
As efficiencies improved, vessel capacities increased and global shipping costs became more affordable, retailers continued to source more products from the most efficient producers around the world. Products were sourced through competitive bidding to achieve margin improvements and the supply chain became more complex. Different stages of the product manufacturing process are increasingly taking place in different countries, with raw material sourcing and final assembly and packaging occurring in production sites most beneficial to win business and reach margin targets.
According to management consulting McKinsey & Company, since 2000 the value of intermediate goods traded globally has tripled to more than $10 trillion annually. –
Two-pronged strategy not enough to absorb demand or supply shocks
For decades, supply chains operated seamlessly an overwhelming majority of the time, marked by efficient but rigidly defined delivery routes and complex supply chains with intermediary production at the lowest price. Over time, the failure points in taking only this approach to managing supply chains became clear. Many of the early Covid-related shortages made logical sense from a consumer perspective, such as cleaning supplies, personal safety items and prepared canned meals like soup and hand wipes. However, societal behaviours have distinctly changed how we shop, eat and travel. This historical shift has created a whole new set of demands and ensuing shortages of normally predictable demand items such as bikes, lumber, food jars and even golf clubs and other consumer goods.
Rapid acceleration of demand in localised markets around the world coupled with different ways of working and consuming products make markets volatile and hard to predict. Going back to the same traditional strategy of shorter lead times and lower overall price is not the complete answer. More resiliency and flexibility are what retailers need right now, as they don’t want to lose customers due to continued unpredictable shelf and delivery options. McKinsey states that 93% of supply chain executives reported to needing to make their supply chain more resilient.
Strategies for increased supplier intelligence and resilience
- Gain clear understanding and singular view of suppliers. Large retailers with multiple banners may have one system to manage relationships on the merchandising/buying department, a different supplier information system for the supply chain team and even another for finance and accounts payable teams. Bringing all these tools together with a common supplier view ensures completeness of information and trust within the organisation, allowing everyone to make informed decisions.
- Create transparency of supplier base and ownership. Without a 360-degree view of suppliers and their supplier ecosystems, companies may have blind spots in the original source of materials and be unable to really measure the performance of their entire organisation. A more robust system of capturing supplier information can provide retailers with more information earlier, including ownership lineage to prevent future supply chain disruptions.
- Improve data modelling to have redundancy of suppliers for key items. Key items frequently found in shopper baskets online or in-store cause larger short-term revenue damage and long-term loyalty drain due to the indefinite shortages. By identifying regional suppliers to provide an additional source for top items, retailers protect their professional reputation and prevent customer churn.
- Centralise, accelerate and improve supplier onboarding process. Increasing SKU count to offer an endless aisle is an important strategy for retailers looking to retain or expand omnichannel market share. Making the supplier base more resilient and flexible does not automatically lengthen the supplier onboarding timeline. Commonly, retailers optimised the item onboarding activities only to be held up by supplier approval delays. The process for onboarding new suppliers can remove delays from inter-departmental review and unclear approval process.
Flexibility for the future
The two-part strategy of managing suppliers by optimising price and establishing extremely lean and optimised supply chains have made many retailers vulnerable and more susceptible to business shocks. By building intelligence about suppliers and their systems through effective supplier master data management, retailers can establish flexibility in their supply chain and reduce shortages while creating supply chain transparency.