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Global Supply Chain Disruption - Is Retail’s Xmas goose cooked?

17 December 2021
From our ‘Thinking outside the box’ series
COVID-19 has caused massive disruptions to global supply chains. Gareth Jude discusses how retailers can better protect themselves from future crises with improved responsiveness and resilience.

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 containers in circulation and longer shipping times. Distribution has suffered from labour shortages in transport, warehousing and last mile delivery causing further delays with stock almost in the sight of the customer.  Xmas is coming. This is the season when retailers generate 30%-50% of their sales and profit. Will supply chain disruption kill Xmas for the retail industry? What can retailers do to improve their supply chain management so they are better prepared for disruptions in the years ahead?

The good news for retailers is that supply chain disruption hasn’t translated into lower sales or profitability in most cases.  The bad news is that the conditions that created record results for many retailers are about to end. Government subsidies that supported consumer spending and restrictions on travel, hospitality and major events which gave consumers little option other than to direct that spend to retailers are being wound back.  Retailers already have a supply problem; they may also be about to have a demand problem.

The real cause of supply chain disruption

The trigger for supply chain disruption in retail was the covid-19 pandemic but it’s cause is the way supply chains have been managed for the last 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 and designed their supply chains to be responsive to local demand 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 triggered by covid-19? Will that save Xmas?

Xmas always brings peak demand not only for stock to sell but for the shipping, transport, warehousing and labour resources to get it to market. If retailers have not secured the resources they need by now it is unlikely they will be able to find them at this late stage. However, while some retailers may have less to sell than they would like, consumers are cashed up and feeling positive which makes for what should be a great retail Xmas. Now is the time retailers should look at their supply chain management practices so that they are better prepared to deal with  disruption in the months ahead. 

Improving supply chain management

 Information has always had the power to make supply chains more responsive and resilient. The adoption of computerised 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 what is going on in the supply chain than ever before. Deploying IOT, Cloud computing and Artificial Intelligence/Machine Learning in the supply chain increases the speed and accuracy of demand forecasts which in turn can be used to optimise 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. When supply chain partners collaborate it has been shown to lead to increased responsiveness, increased sales, lower overall inventory and reduced costs. The value of collaboration multiplies when 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 in the design of products, in the financing of manufacturing and easing the last mile burden by picking goods up from retail shops, from lockers or installing location aware apps to minimise delivery fails. Adding consumers to the set of collaboration partners in the supply chain is a new area of opportunity for retail supply chain management.

Conclusion

This year’s retail Xmas goose is already cooked 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 it does mean looking 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.