Toilet paper was the canary in the coal mine for demand-driven supply chain disruptions in early 2020. But as the pandemic took hold, toilet paper was soon joined by everything from chlorine and cars to laptops and fridges, all of which led to inventory shortages, logistics nightmares, and in some cases, added costs for consumers.
Now, as we head into our second holiday season since COVID-19 began, supply chain volatility shows no sign of slowing down. 30% of Australian businesses, and half of them retailers, are affected by supply chain disruptions today, according to the ABS.
It’s tempting to blame much of this on the pandemic or one-off events like the Ever Given getting stuck in the Suez Canal. Doing so, however, might lead to an expectation that these conditions will come to an end once we get COVID-19 under control when in reality, shifts in consumer behaviour will likely remain, and the rise of demand-centric supply chain disruption will continue to be a key area of concern for retailers.
Adapting to these changes doesn’t simply mean switching retail channels and shipping providers. So, how should retailers prepare for this new normal as we head into the next holiday season?
Prepare for plan B
Preparation used to mean stocking up on inventory months out from peak shopping seasons. But as shipping and warehousing costs climb, this preparation can quickly eat into margins and leave retailers with excess inventory and increased overhead if consumer preferences change.
We saw that during the past year — even those retailers with years of experience in e-commerce sales were caught off-guard when they assumed consumer demand would continue to expand for some products. They were stuck with months of inventory and forced to offer loss-leading promotions to clear excess stock when that didn’t eventuate.
Having a plan B that factors in multiple nuanced scenarios can help retailers avoid these worst-case scenarios. At the heart of this is asking the right questions about inventory, liquidity, and logistics: can we absorb swings in consumer demand or supply? Can we quickly move inventory from brick-and-mortar to e-commerce? Can we afford to hold extra stock on hand if buying slows? Can we run special promotions to encourage shoppers to buy now and pick up later?
Modeling these scenarios will help retailers identify gaps in their supply chain ecosystem that need to be fixed and enable decision-makers to prepare for any possible outcome to pivot in real-time and manage disruption with confidence.
Treat bricks and clicks as equal citizens
The yo-yo of sudden lockdowns in some states over the past few months has led to a two-sided tale. Some retailers have moved easily to online-only orders, while others tried Click-and-Collect options as an alternative to the traditional in-store experience.
Those retailers that prioritised in-store shoppers were hit especially hard. After all, it’s no small feat to set up shopping alternatives like Click-and-Collect, especially if you aren’t staffed appropriately. This can quickly lead to consumer frustration, especially since almost 20% of consumers experience problems when ordering online and picking up in-store.
Retailers that succeeded in these new shopping strategies often had existing digital tools in place, making it easier for supply chain leaders to maintain a holistic view of inventory across warehouses and stores. And with a clear picture of inventory and data on consumer behaviors, these leaders were able to collaborate effectively with HR to ensure the right resources were allocated to the suitable locations, allowing for easy fulfillment of orders and eliminating any potential points of friction consumers.
Others, like some supermarket chains, have used their physical footprint to their advantage — tapping into brick-and-mortar inventory to fulfil online or Click-and-Collect orders directly from their existing stores, closer to customers. Success with this approach once again required retailers to have strong digital operations that would allow for greater supply chain visibility to drive shifts in inventory and guide fulfilment and staffing plans.
The pandemic forces retailers to embrace an omnichannel approach, but it’s more complicated than popping up an e-commerce store. Establishing digital supply chain systems that capture real-time inventory signals, data on consumer behaviours, and supply data across channels is vital and will help ensure workforces are set up to support sudden shifts in demand and capacity.
Own the demand
Traditionally, the profits of the retail industry have been primarily driven by significant shopping moments — Christmas, Boxing Day, and the like. However, the past 18 months have shown that consumers are no longer driven by these same moments. Thanks to online shopping, real-time data helps retailers better understand consumers, how they shop, their interests, and which products they’ve considered buying.
Sneaker and streetwear brands have created their own moments by creating momentum around product ‘drops’ that happen exclusively for their members at seemingly random points in time.
By leveraging consumer data to understand buying signals and creating your very own ‘key moments’ throughout the year, there will be less pressure on traditional peak seasons to turn revenue around for the year. Plus, having a more dispersed approach to retail marketing will put less strain on the overall supply chain.
The ‘old way’ of retail, based on long lead times and implicit assumptions around consumer behaviour, no longer flies in the world of disruption and volatility we see today. Retailers must be prepared to constantly adapt to changes not just in disruptions to the supply chain but consumer behaviour and plan for the best — and worst— scenarios to have a successful holiday period.
Andy Thiss is area vice president at Anaplan.