What is supply chain: Definition, models, challenges
Supply chain is having an ongoing moment. Discover the trends, models, challenges, and requirements of modern supply and demand.
More than two years after COVID upended the global supply chain, retailers are still reeling. Uncertainty has become the norm as they work to keep shelves stocked, inventories healthy, and customers satisfied.
Many are tackling the ongoing challenge by transforming their retail supply chains in preparation for the critical holiday shopping season and to fortify their business moving forward. Gartner research shows that 96% of retailers plan to invest to make their supply chains more agile, and 90% are planning investments to make them more resilient.
There are three major steps retailers are taking to strengthen their supply chain:
- Upgrading order and inventory management
- Boosting visibility
- Implementing analytics
Retail supply chain: By the numbers
According to the Gartner Future of Supply Chain Survey, 59% of retail respondents report that their supply chains have been designed primarily for cost efficiency.
Unfortunately, as the pandemic illustrated, a supply chain built for cost optimization is a brittle one. Every link in a supply chain is susceptible to disruptions, many of which are beyond retailers’ control.
For example, geopolitical risks, health risks, or labor violations can cause factories and distribution centers to be shut down. Work from home mandates change product demand and purchasing channels. Government stimulus payouts and inflation impact consumer spending on unexpected products and services.
These disruptions can have far-reaching impact. Case in point: supply chain challenges could cost North American apparel and footwear brands from $9 to $17 billion in lost EBITDA in 2022, according to Kearney.
Supply chain resiliency: Three lessons from COVID
Improving supply chain resiliency is crucial for most businesses, but doubling down on practices that limited effectiveness during COVID isn’t the answer.
Rethinking inventory for omnichannel shopping
The shift to e-commerce taxed retail supply chains. Legacy order and inventory management systems were designed to manage the shipment of cartons and pallets from distribution centers to physical stores — not customer orders to households.
In addition, the majority of retailers manage siloed, channel-specific inventories. Without a shared inventory pool to satisfy both store and ecommerce demand, retailers risk selling out of goods in one channel and having excess inventory sitting in another.
With online shopping habits here to stay, retailers need to make changes. According to Kearney, “Nearly 60% of all retail goods are purchased online, and this percentage will likely remain high, never returning to the pre-pandemic 9% level.”
To address these challenges, retailers are upgrading their order and inventory management systems. They’re adopting systems designed for multi-channel operations and support a single inventory pool for all sales.
Retailers are also aligning promotional plans with the appropriate channel based on available and expected inventory.
The future of order fulfillment: 4 trends to watch
The retail landscape has completely transformed in the past couple years, putting order fulfillment to the test. Here's what you need to know about fulfillment, post-pandemic.
End-to-end visibility of the retail supply chain
Retailers traditionally use a variety of data systems to track and govern individual links in the supply chain. Not only are these systems disconnected from one another, but they’re also managed by separate teams.
The lack of visibility makes it difficult to see potential issues coming down the pipeline and work proactively to minimize their disruptions. Instead, retailers often don’t spot an issue until it’s already a problem.
To obtain better, end-to-end visibility, retailers are deploying technology that connects data systems and generates insights across the supply chain. These solutions are helping retailers improve agility, as they’re better able to identify bottlenecks and accelerate response times.
The high cost of e-commerce returns: A trillion dollar problem
Marketing metrics often overlook the high rate of e-commerce product returns, which is extremely costly to retailers. As global e-commerce continues to grow, the amount of returns is expected to cost retailers more than a trillion dollars a year.
Looking into the crystal ball: Analytics for better forecasting
Forecasting and demand planning are becoming increasingly complex, and supply chain issues are only partly to blame. The number of delivery options available to customers result in purchasing nuances that also impact inventory.
For example, to accurately determine where retailers should hold their inventory, they need to understand the demand for the product, as well as whether customers are willing to pick up their purchase at a brick-and-mortar store, pay for next-day shipping to their home, or wait a couple days in exchange for free shipping.
They also need to factor product returns into the process. With the rise in e-commerce, returns have also increased, creating more logistics and inventory complications for retailers to manage.
Many retailers are looking to advanced analytics to help them go beyond determining the best time to have a sale. Using historical data, machine learning, and artificial intelligence, these retailers can modify delivery services and inventory locations to meet the demands of the modern consumer.
The pandemic exposed weaknesses in a supply chain built for cost optimization. But as retailers boost their resiliency and agility, they’ll be better prepared to respond to future disruptions while maintaining margins.
