The rate of change in consumer demand witnessed over the past few months has been unprecedented, calling attention to the importance of effective lines of communication between suppliers and retailers. As demand for certain products spiked and supply chains experienced disruption, information sharing and access to accurate information became critical for both parties. Suppliers needed real–time information on the products being taken from and those remaining on retailers’ shelves, while retailers adjusted their orders on the fly to satisfy consumer demand.
Prior to the pandemic, both suppliers and retailers were embracing the importance of cooperation and transparency. A joint study from Coresight Research and Precima based on feedback from 210 CPG suppliers and retailers found that 85% of retailers and 92% of suppliers believed that collaboration with their business partners had improved over the past two years: with only 1% stating that collaboration had worsened.
Although the initial shock of the COVID-19 crisis has subsided, conditions have far from normalized, and there remains a lot of volatility and unpredictability around what lies ahead. This should accelerate the trend towards information sharing even more now, with both retailers and suppliers exploring ways to digitally share and access relevant and accurate data better to inform their decision making during times of uncertainty.
According to the National Retail Federation, 65% of retailers have experienced or are expecting supply chain disruptions due to the coronavirus pandemic. Even though the speed and degree to which the virus sent the world into shock has been a singular, “black swan” event, it has amplified awareness of the risk associated with not having a data analytics strategy that can be deployed when irregularities occur.
Having access to clean and precise data is key to developing a flexible and adaptive supply chain, and all parties along the delivery chain need to provide each other with clear data visibility to make this a reality. Digitization of the supply chain has become a key enabler of data sharing and tracking. The days in which CPG companies would deliver pallets of products to a retailer’s distribution centre, and from there, the retailer singularly managed their inventory through Point of Sale (POS) and Enterprise Resource Planning (ERP) systems are becoming a thing of the past.
Legacy ERP systems make it challenging for large supply chains to accurately track and monitor complex transactions across a vast network of partners and products. They are also prone to human error, and often do not communicate well with one another. A more fully integrated digital supply chain utilizes Radio Frequency Identification (RFID) to monitor where a product is at any time, and along with smart sensors and digital inventory monitoring, enables the detection of early warning signals.
Digital and integrated supply chains not only better equip both parties to prepare for disruptions, but they also result in cost savings as the need for cumbersome paperwork and manual administrative processes are reduced over time. Technology consultancy Capgemini has found that companies generate an average return-on-investment of 18% within a year of digitizing their supply chain. Further reaffirming the financial importance of transparency and information sharing, one-third of respondents in the Coresight/Precima study mentioned lower supply chain costs and more efficient operations as a benefit of strong retailer-supplier collaboration.
The power and utility of a data analytics system is only as good as the quality of the data that it captures. Accordingly, suppliers and retailers are in some ways at the mercy of the level of data transparency that the other brings to the table. No matter how technologically advanced a digital supply chain is, if up and downstream partners fail to share and integrate accurate and timely data, the system’s overall performance is compromised.
The Coresight/Precima study reveals that data transparency tends to work more in favour of retailers than suppliers. Around two-thirds of retailers express satisfaction with the access to data and insights received from suppliers, compared to around 50% satisfaction levels experienced by suppliers. The study goes on to state that 63% of retail respondents and 52% of supplier respondents cite a lack of trust and communication as “challenging” or “very challenging” when collaborating.
One possible, albeit somewhat controversial, game-changer that could alleviate trust concerns could be blockchain technology that encrypts data to make information sharing more secure and centralized. Utilized to date mainly for cryptocurrency networks, the technology is starting to make its way into other industries as a means of verifying information in a tamper-proof way. For example, the telecom sector deploys it to enforce digital copyrights and reduce roaming and other types of fraud. The healthcare sector is increasing its use to share patient data securely, and the defense sector deploys it as a way of countering cyber warfare. In the case of manufacturing and food supply chains, in particular, blockchain is viewed as a significant enabler of product traceability.
Blockchain’s effectiveness relies on critical mass. Just as the 2008 financial crisis lead to blockchain’s emergence as a disruptive technology in the financial sector, COVID-19 is shining a light on supply chain vulnerabilities within the food sector. This could provide the impetus for CPG suppliers and retailers to adopt it as they move to further digitize their supply chains.
COVID-19 has caused many retailers to rethink and diversify their sourcing strategies, with many looking to onboard more local suppliers to strengthen supply chain security in the event of further global supply chain disruptions. Securing new suppliers is a risky process, raising the importance of accurate data and a robust risk analysis model. The more willing and able a prospective supplier is to share information in a way that can be integrated into a retailer’s supplier portal, the better the chance they have of winning and retaining retailer orders.
According to a 2020 study commissioned by procurement platform provider Tealboo, 81% of procurement and supply chain professionals indicated that they are not fully confident in the supplier data being used in the validation process. A further 93% stated that they had experienced adverse effects due to misinformation, and nearly 60% of companies who use a supplier portal said that they do not trust suppliers to keep their information up to date.
In terms of the level of information being sought from retailers by suppliers, transparency extends beyond aggregated sales data. Effective joint business planning involves predictive analytics that rely on retailers’ sharing loyalty card, point-of-sale, and anonymized customer data. Transparency is also bolstered by the Internet of Things technologies such as shelf sensors and cameras that allow CPG suppliers to monitor how products are displayed and priced on shelves visually. “Virtual store visits” assist them in understanding the merchandising factors that are influencing sales rates and aid in assessing optimal inventory levels to deliver on.
With the pace of economic recovery and staggered market re-openings, it will be some time until supply chains regain the levels of pre-COVID stability. Forward-looking companies will take the learnings from this pandemic to reassess and future proof their supply chain technology with digitization and the centralization of data as key components in doing so. Technology, however, is only one part of the equation. If suppliers and retailers genuinely want to position themselves to better predict and prepare for future anomalies, data needs to be shared with transparency; and trust is required to do so.
This blog was written and contributed by:
Head of Custom Solutions
Advantage Group International
This article was originally published on 17 June 2020 on the Advantage Group website.