Supply Chain Execution Woes Drive New Strategies
We’re in the thick of writing our annual benchmark on the supply chain. This year, our goal is to focus on supply chain strategies. What has struck me most so far is just how much issues with supply chain execution are forcing changes to corporate supply chain strategies.
To be fair, this survey was conducted prior to the Coronavirus (now named Covid-19) outbreak. No doubt if we conducted the survey today it would have to focus on diversion strategies, sourcing closer to the point of demand, and other contingency plans, since the virus spread seems to be carrying on unchecked.
But separating “normal” operations from what is about to become a supply chain shock, we find the even the “normal” is new. Retailer care-abouts have shifted to consumer care-abouts, most especially around environmental and humanistic concerns.
Realistically, if we had run this survey three years ago, I’m not sure that 62% of retailers (guaranteed anonymity) would have responded that the way workers are treated is very important to them, or that 59% would find compliance to environmental standards in contracted factories were also very important. Yet that’s where we are today.
Beyond these customer care-abouts, retailers still have internal care-abouts, that certainly impact their brand and customer experience, but are much more nuts-and-bolts.
- 40% of Retail Winners worry that as they grow, their supply chain may not be able to keep up with demand (vs. only 28% of non-Winners)
- 40% of Retail Winners feel the pressure of digital channel growth outpacing store growth, and the pressure that places on the supply chain. Oddly only 21% of non-Winners express this as a top-three business challenge.
- Despite their lack of concern over digital channel growth, non-winners are more likely to be concerned about the unpredictability of consumer demand (44% vs. 36% of Winners) as a top-three challenge. Perhaps they need new investments in forecast engines. It’s not conceivable that non-winners are less likely to be losing in-store sales to digital channels than their winning counterparts. Consumer behavior is consistent, even if that consistency is going in directions that were once unexpected.
- Retail Winners tend to be worried about having too much inventory, while others worry that they stock out too often, both in stores and in DTC distribution centers.
Even as retailers adjust their supply chain strategies to accommodate these new realities, it seems important to highlight the importance of a modern forecast engine. With online sales increases of 15+%, it’s no longer realistic to base this year’s plan on last year’s number. Nor is it a great long-term strategy to buy the equivalent of safety stock to hedge your bets against changes in demand, either by channel or in aggregate. If your forecast engine is unable to capture trends in a near-real-time basis, it’s probably time to get a new one.
Of course, going back to where we began, there’s the ever-present danger of supply chain shocks. While as a general rule, retailers are looking to more humanistic and politically stable sourcing environments, they are also moving rather slowly. However, when an extraordinary event like Covid-19 appears in the world, retailers and their suppliers need the flexibility, intestinal fortitude and technology to hedge their sourcing bets. When tens of thousands of people are sickening by the day, and we face a global pandemic, this becomes an imperative.
Equally important is assessing the risk to the top line. To wit: Under Armour, in the midst of reporting a difficult quarter also expressed concern about lost revenue due to the virus in China in the current quarter.
China is now the world’s second largest economy. It is both a producer and consumer of goods from around the world. This presents questions again around forecast capabilities and finding ways to reduce orders when it becomes apparent that certain markets simply are not going to perform, maybe for months on end. No cure for Covid-19 has been identified, nor has an anti-viral been produced to reduce the strength and duration of the disease.
While some people are saying “its time to stop focusing on the supply chain and focus instead on the customer experience” we would argue just the opposite. An effective and efficient supply chain drives the customer experience, as much as an indoor ski slope in a mall in Miami might. Retailers and their suppliers need to take a long, hard look at their supply chain strategies, and resulting gaps in execution. More than likely, they will find that it’s time to change. And the window is actually pretty small.
Our planet is hotter the weather more unpredictable than ever. This will continue to impact the supply chain for years to come. Nimbleness should be the world of the day. Complacency is the enemy.