Business
Why supply chain management needs to go back to basics
Global Banking & Finance Review®
Company
By Martin Pateman-Lewis, Engagement Director at Ensono Digital
The global supply chain is, in essence, the movement of goods between manufacturers, retailers, and consumers. It is a complex web of moving parts that is, in its current state, is easily impacted by an array of external factors. As of July 2022, consumers have seen an increase in fuel, food, and energy prices, alongside a short supply of brands and items. In the USA, for example, consumers have seen a shortage of baby-related products, like baby formula, throughout 2022 due to issues with the supply.
New SAP research shows that almost a quarter of decision-makers anticipate that supply chain issues will remain a problem in the summer of 2023. This daunting prospect has encouraged some retailers to rush investment into technology solutions, like artificial intelligence and machine learning, in an attempt to find a solution. However, a strong focus on perfecting the fundamentals of supply chain systems would be a far more effective approach.
The global supply chain itself has undergone significant change during the last two years, driven largely by the ripple effect of the COVID-19 pandemic. Recent reports suggest that hybrid working models have transformed customer expectations of retail experience: 27% of consumers and 36% of Gen Z prefer a hybrid shopping model with a blend of digital and physical channels. As a result, retailers are now under increased pressure to not only deliver a streamlined and effective online experience but also to bring digitalisation into their stores to improve customer experience in-store as well. Tech-enabled touchpoints that allow customers to locate products, order food, and self-checkout easily are just some of the tools that customers have grown to expect as part of their retail experience.
This transformation has also come at a time of huge disruption for the supply chain. The traditional supply chain model, “just in time”, failed to hold under the pressure of the pandemic, where demand for goods outweighed the supply. Lockdown gave some consumers excess cash, saved from spending less on expenses like travel and eating out, which drove up demand for goods, and an appetite for accessible and intuitive online shopping experiences.
The pandemic was only the start of problems for the supply chain. Rising fuel prices and a shortage of HGV drivers are driving up the cost of transporting goods through these traditional systems and putting an increased burden on supply chain managers to adapt. Additionally, disruptors such as the war in Ukraine and new coronavirus outbreaks in China are interrupting trade and forcing retailers to move away from specific regions for goods: exacerbating an already strained supply chain.
It is clear, therefore, that retailers need to rethink how they approach the supply chain and reinvest time into ensuring their foundations are secure. By developing a concrete foundation, retailers can limit the disruption that external factors might have on their supply.
Redefining the global supply chain
The pandemic forced many retailers to adapt quickly to manage business disruption in an unprecedented set of circumstances. However, now is the chance for retailers to focus on getting the fundamentals right and optimising their supply chain.
The key to this is redefining how we perceive supply chain disruption. First, a distinction must be made between supply chain disruptors and poor supply chain management. Whilst geo-political situations disrupt the supply chain, they are not the root cause of why we’re missing products off our shelves. Instead, it results from clients struggling to react to the market and feeling the effects of chronic underinvestment in supply chain technology.
Current industry solutions
Some retailers, most notably those in the fashion industry, have turned to near-shoring solutions which involve bringing manufacturing closer to end consumers. Inditex, a fast-fashion giant, now manufactures 53% of its fashions in Europe. This not only reduces shipping costs and increases the reliability of their supply but can also improve a company’s environmental impact.
Others have turned to new technology to improve their delivery services. Dark stores and automation, from factory robotics to delivery drones and autonomous vehicles, have become popular methods for improving efficiency.
However, getting the basics right is often found to be the most effective way to elevate a delivery service. General merchandiser Target, for example, has released an app that allows shoppers to switch from pick-up in-store to drive up or send someone in their stead, all changeable in real-time with a couple of clicks. The solution works as it addresses a key consumer issue, the collection of goods, in a quick, accessible, and intuitive way, without any over-complication.
Understanding and delivering on consumer demand
Perhaps the biggest struggle facing retailers is predicting demand and optimising their supply chain to reflect uncertain times. This has become clear during the last few years when demands have become more volatile, and retailers have struggled to keep up.
An effective system that maps your supply against demand allows you to plan a strategy to sustain your growth. This is where Data and Analytics Platforms become essential.
Access to real-time data insights allows businesses to plan for seasonal peaks and react to the unexpected. The lockdown showed that businesses that were unable to adapt to demand quickly, for example, and didn’t meet demands for eCommerce solutions, suffered the most. By equipping yourself with a real-time understanding of supply and demand, you can bolster yourself against these potential disruptors rather than get lost in the storm.
Keeping your customers on your side
A positive consumer experience is about more than just super-fast delivery. It is about working with the consumer to ensure they receive their goods reliably and at a time that reflects their needs.
Essential to this is being transparent and accurate with delivery times. The sense of control given to a customer by sharing precise times for pick-up or home delivery and proactive warnings about delays creates a positive relationship between retailer and consumer.
Amazon has set the benchmark for expectations. Even though the company is not a direct market competitor for all retailers, the experience it offers has led to consumers expecting the same experience across all retailers, and responding negatively to those who fail to deliver these standards.
To meet this requirement, some retailers have started integrating the shipping data into their own systems. This can streamline the tracking process by reducing the need for multiple logins and simplify any returns processes by keeping it in-house. It also allows you to ask your consumers when they want their products and focus on meeting the individual needs and expectations of the customer.
Making the most out of your real estate
Another area in which retailers need to invest in is warehouse efficiency. Current shipping models rely on just-in-time supply chains, which are subject to geo-political disruption and disruption from a lack of skilled workers in the shipping and HGV industries. However, many retailers are ill-equipped to evolve into new shipping models.
Limited warehouse infrastructure in the UK means that retailers cannot effectively move stock into the country ahead of time. Over the last decade, the scale of warehousing growth in the UK has been huge, but warehousing costs are around three times higher than they were ten years ago.
Bringing increased automation into these spaces, such as through warehouse robotics, has limited impact as the supply chain is still vulnerable to supply chain disruptors. To move forward, retailers must focus on building their real estate before investing in new technology.
Retailers must seize the opportunity to optimise their warehouse spaces. Click and collect services can be used to create local hubs, as retailers only need to transport goods to spaces, such as supermarkets, which are conveniently located near their end-consumers. Most supermarkets now offer this service as an alternative to home delivery, and the total market for click and collect is set to be valued at £9.8bn by 2023. The model is an easy way for retailers to save costs as they can use their in-store staff to sort orders and minimise the additional cost of delivering the items to the consumer. Other options include hub-and-spoke models, which use regional hubs and reduce your reliance on HGV drivers – currently in short supply – and utilise vans instead. These models can help retailers meet the customer expectation of order fulfilment without incurring a high cost.
Analysing your warehouse space can bring further benefits. Making a note of your warehouse space, production line speed, and system accuracy enables you to maximise efficiency and measure your warehouse’s spare capacity. If you find you have a significant amount of excess space, you can rent it out to other companies and bring in additional revenue.
Retailers need to work smarter, not harder. By making full use of all their infrastructures and existing metrics, retailers can provide goods quickly and reliably without incurring a considerable cost.
Supply chain management involves overseeing the flow of goods and services from manufacturers to consumers, ensuring efficiency and effectiveness in the process.
Digital transformation in retail refers to integrating digital technology into all areas of business, enhancing customer experience and operational efficiency.
Consumer demand is the desire of buyers for a product or service, influenced by factors like price, quality, and availability.
Warehouse efficiency refers to optimizing the operations within a warehouse to improve productivity, reduce costs, and enhance service levels.
COVID-19 has disrupted global supply chains, causing delays, shortages, and increased costs due to changes in consumer behavior and operational challenges.
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