Six improvement areas before the next supply chain crisis

Apr 23, 2020 • 4 min

As the initial shock of the coronavirus pandemic has worn off, retailers are taking stock of where they are today and what their future will look like. Unfortunately, there’s simply no getting around the fact that many retailers, especially independent stores and small chains, will have been so badly damaged by store closures that they won’t be able to recover.

We’re going to see further consolidation in retail in the year to come. Those retailers who are able to reopen must reevaluate everything they thought they knew about their businesses, because the strategies that served the old normal will likely fail to support growth for the new normal without thoughtful adjustment.

The COVID-19 crisis has made clear that retailers, almost without exception, must make supply chain improvement an urgent priority going forward. Here are our thoughts on what retailers must prepare for.

1. Initiatives to make supply chains more flexible and adaptable

Traditionally, retail has been a fairly stable business, with like-for-like growth rates of a few percent at most, especially in the grocery sector. The impact of the coronavirus on demand patterns made abundantly clear how rapidly things can change and how ill-prepared many retailers are, in their current state, to adapt quickly to new conditions. It’s no small feat for tens of thousands of retail employees to plan and manage tens of millions of product flows when dramatic demand deviations undermine their stability.

There should be an increased urgency to invest in forecasting, inventory management, markdown optimization, and workforce optimization to prepare for similar pandemic scenarios that may well arise in the future — even within the next year, as some experts believe. Technology solutions must position businesses to react more quickly to shocks to their supply chains that could have significant rippling impact in other operational areas — for example the ability to change material flows quickly, supply chain collaboration, capacity management, assortment prioritization, and allocation.

2. Diversified supplier bases

The dramatic demand increases essential retailers have seen in recent months have already begun to level out, according to many of our customers, and we don’t expect higher inventory levels to be the new norm going forward. The fact still stands, though, that many retailers continue to face inventory scarcity due to inflexible sourcing strategies.

To improve their capability to manage changes in distribution, many retailers are putting risk management strategies in place for their sourcing. Your supply chain should not be overly dependent on long lead-time purchasing, or on a small pool of specific suppliers or sourcing regions. Don’t rely on a single supplier at the category level; while it may be a cheaper strategy, the risk is enormous. However, because implementation comes at a cost, there may be significant trade-offs to consider in this area.

3. More collaborative relationships with suppliers

After months of inventory shortages, retailers are now highly focused on their suppliers’ capabilities to deliver stock. Fortunately, our customers who’ve built strong relationships with their vendors have reported excellent collaboration and high levels of visibility for both need and availability. Many suppliers are giving their customers advance visibility into what they will be able to deliver, while many retailers are more open to proactively sharing their demand forecasts with suppliers to ensure high service levels.

4. Agility will be key for changing material flows

For many retailers, distribution centers have been one of the biggest bottlenecks throughout the coronavirus supply chain crisis. But even for retailers with the most efficient distribution centers, there must be processes in place that will allow them to quickly change delivery methods when needed. When capacity problems arise, retailers need the agility to switch quickly to crossdocking or direct supplier-to-store deliveries.

5. Improvements to capacity management

To maintain high availability for customers while managing capacity constraints, many retailers are shifting to larger batch sizes. Traditionally, it’s been discount retailers who’ve made best use of mass presentations in their stores. Traditional retailers would be well-served, though, by studying best practices in this area to prepare for times like this, when large batches are a necessity to meet consumer demand.

Retailers also need processes for how to prioritize their assortment and allocate goods when experiencing capacity problems. For essential retailers, demand has obviously been unmanageably high, especially in the early “stockpiling” days of the COVID-19 pandemic. By narrowing the assortment and optimizing the allocation of goods, it’s possible to ensure the most important products maintain high availability.

6. Faster, leaner, more efficient

In general, retailers as a whole must improve their decision-making processes as well as their communication and visibility — both internally and externally, with vendors — to become faster and more efficient. Too many retailers still have conservative strategies that handicapped them during this period of unprecedented supply chain challenges. The days of slow, bureaucratic decision-making are over.

Slow-moving retailers will learn hard-earned lessons from this experience. More companies will shift toward leaner, faster, more reactive decision-making processes that rely on open communication and high levels of transparency to better position themselves for success.