How Retailers can Manage Supply Chains Through Unpredictability

Did you know the US had 23.8 square feet of store space for every single person in 2018? 

That’s more than any other country in the world and this stunning stat comes from the International Council of Shopping Centers. 

Yes, the coronavirus pandemic may be changing the number of brick and mortar stores open in our towns, cities and communities in America and beyond — but the retail scene is huge, resilient and doing all it can to change with these times.

In this article, we’re going to briefly cover some of the challenges supply chains have had since the pandemic, talk about how one well-known clothing retailer has been affected and share some positive news with you about people’s holiday shopping plans. 

More importantly, we’ll run through seven tips for how you as a retailer can improve your supply chain management from CEOs and experts who’ve been working on supply chains for years.

If you’re short on time, skip ahead to the parts you’re most interested in using the links here:

• What supply chains are and what they mean to retailers
• Why is retail supply chain management such a big deal?
• How has the pandemic affected retailers and shoppers’ habits?
• 7 steps for retailers to mend broken supply chains

OK, let’s get going.

What is supply chain management in retail?

Supply chains are a huge part of our daily lives.

Put simply, a supply chain is how the goods we buy and sell are made, transported, shipped, and delivered to the places we need them to be.

A supply chain is how the goods we buy and sell are made, transported, shipped, and delivered to the places we need them to be.

If your household got caught up in the Great Toilet Paper Panic of 2020, then you know what happens when supply chains get disrupted. 

Supply chains aren’t just important for retailers, they’re the engine of our economies, our essential services and in many cases our livelihoods.

Why is retail supply chain management such a big deal?

The Retail Industry Leaders Association puts it a bit better than we ever could: “Supply chains are what link shoppers with the experiences and products they desire.”

And in our globally connected world, goods, services and experiences are made, transported and delivered absolutely everywhere. 

Imagine a ball of knitting yarn for a few seconds — all those interwoven threads are the paths that the parts, goods and services take as they travel all across the world during manufacturing, transportation and delivery.

In other words, we all depend on each other. When Retail Systems Research (RSR) released a report in March this year, it revealed the following: 

• Retailers with annual revenue less than $250 million depend on other hemispheres
• None source more than 50% of their product close to the point of demand 
• Three-quarters of merchants source less than 25% from the northern hemisphere.

In a nutshell, the majority of independent merchants rely on overseas production and international supply chains. If something happens that disrupts production, transportation or delivery, their ability to effectively serve customers is diminished. 

That’s why the pandemic has been such a headache for anyone who’s in the business of making supply chains work. If you imagine that knitting yarn again, then think of all its threads being yanked really hard until everything began to unravel. 

That’s what’s happening in 2020.

How has the pandemic affected retailers and shoppers’ habits?

Whether it’s a small boutique, market stall or major department store – everybody has felt the pinch. Take Fast Retailing Co. Ltd., the owner of Uniqlo, as an example. 

The company reported an almost 40% year-over-year drop in revenues in the three months leading up to May 31, according to S&P Global. Uniqlo’s owner blames that slide in revenues on closures caused by COVID-19 restrictions. Uniqlo may be opening up again, but it still expects a 50% slide in North American revenues in Q3, according to S&P.

If that sounds like a downer, hang on, there are bright spots on the horizon.

For example, when Radial, a commerce technology company, surveyed more than 1000 US shoppers recently, it found many consumers will keep their holiday spend at similar levels to 2019 — despite the pandemic. Shoppers voiced a clear preference for online shopping in that same survey, with 66% saying they’ll increase online purchases during holidays.

7 steps for retailers to mend broken supply chains

So, what can retailers like you do to make supply chains stronger in this time of change? We spoke to Joseph Heller, CEO of The Studio Technologies, Gilad Rom, CEO of pet smart tag retailer Huan, and Carlos Castelán, Managing Director of The Navio Group, a consulting firm that advises retail executives, for some expert insight. 

Here’s what they said: 

1. Make backup plans now
2. Depend less on China
3. Arrange alternative suppliers
4. Shorten your lead times 
5. Move from forecasts to real-time data
6. Make warehouses safe
7. Create inventory buffers

1. Make backup plans now

Even before the pandemic, supply chains were changing. A Bank of America survey of 3,000 global companies (based outside China) found many are shifting supply chains from current locations, or at least plan to soon.

“Previously for many companies, China was a one-stop solution for all manufacturing needs. Then costs started to rise in China, tariffs were placed on imports and exports, and finally COVID,” says Heller, whose company democratizes manufacturing and supply chains for SMBs.

“Now, it’s clear to everyone you have to diversify your manufacturing outside China. The problem is that for many products diversifying out of China is very difficult, especially for small businesses,” he said.

2. Depend less on China

Still, businesses can’t ignore the fact that COVID could disrupt supply chains again in the short term, said Joseph, along with rising costs in China and the decline in US-Chinese relations.

“Start by understanding what country is the next best substitute for China, whether it’s abroad or local. You will want to make sure that not only can they produce your product, but that hopefully they have the downstream raw material suppliers to support these factories. Otherwise, you might still find yourself dependent on China,” he said.

“Then it’s about building relationships with these factories, by keeping constant communication on your quality requirements and pricing expectations. If you have the budget, you should also hire a local team.”

3. Arrange alternative suppliers

Gilad Rom suggests that retailers diversify sourcing and manufacturing bases to span different suppliers in different locations. “Retailers with multiple supply locations around the world will have more resilience to localized crises,” he says. 

Another tactic is to build backup supply networks and negotiate agreements with alternative suppliers for reserve production during a disruption. “This strategy is cost-effective because the alternative source is only engaged during the period of disruption,” said Gilad.

4. Shorten your lead times

Carlos Castelán suggests tweaking lead times — that’s the time between the merchant placing a purchase order and the manufacturer delivering it — may help retailers manage lumpy demand.

“On the supply chain side, having a supply chain with shorter lead times and can react to the demand signals will continue to be critical going forward,” said Carlos. 

“Many retailers have gluts of inventory today that will be difficult to go through while simultaneously purchasing more seasonally relevant inventory for summer and fall,” he added.

5. Move from forecasts to real-time data

“One of the biggest lessons from this pandemic is that retailers need to have more dynamic demand planning and flexible supply chains,” added Carlos. 

On the demand planning side, this means having systems that are able to update forecasting using many different data points in real-time and apply machine learning.

“As an example, companies that leveraged data and signals from other markets around the world such as Amazon, and even supermarket chain H-E-B in Texas, were able to react ahead of time to adjust forecasting demand and develop plans based on the pandemic which eventually unfolded in the United States.”

For smaller-scale independent merchants, Google Trends is a useful free tool to see search volume and interest in certain products of categories based on its search term. Additionally, reporting and analytics software can help translate real-time sales data into efficient inventory purchasing and management. 

6. Make warehouses safe

Another big part of the supply chain puzzle is warehousing and distribution. Whether you own your own warehouses or work with partners, it’s important they are as safe as possible.

The Council of Supply Chain Management Professionals has created a useful list of tips for keeping warehouse staff safe in the COVID era. Here are some of those tips, which can hopefully help you take steps to prevent any stoppages or delays in your supply chain: 

• Keep warehouse activities as separate as possible
• Supply warehouse staff and drivers with masks, gloves and hand-washing stations
• Create barriers and partitions to mark physical distancing within the warehouse
• Close off every second seat in any waiting rooms
• Roster staff in non-transferrable shifts
• Check temperatures at the start of shifts
• Limit inventory checks and non-essential tasks
• Carry out weekly sanitization cycles

7. Create inventory ‘buffers’

Many retailers are now keeping more inventory on hand in the case of a reemergence of COVID or other supply chain interruptions, said Joseph. This is another tactic you can use to manage your supply chain during this time — but make sure it’s right for your business. 

“This obviously comes with additional costs and risks, which need to be carefully weighed in conjunction with benefits. This requires a thoughtful financial projection that looks at worst-case scenarios of what would happen in case of supply chain disruptions, the likelihood they will happen, the brand and financial damage if they do happen, and the risks of there being no supply chain issues, but being stuck with excess inventory.”

Gilad agrees it can be important to keep the right amount of extra inventory on hand. “An inventory buffer refers to having a large buffer of ‘safety stock’ to ensure you can always ship orders even if experiencing unreliable supply,’ said Gilad. “[Having a] capacity buffer refers to not using 100 percent of supply capacity so you can rapidly increase supply in times of crisis.”

The time is now

It’s certainly been a tough year for supply chains, but it’s also been a time of transformation. 

If retailers can make the commitment to continuously improving their supply chains, they will be well-placed to better deal with the ups and down of supply and demand. 

“Developing supply chain capabilities that are leaner from sourcing to customer order fulfillment will be critical going forward to be able to pivot quickly and react to shifting trends or rapidly changing demand,” suggests Carlos.