Part 1: Four Supply Chain Disruptions Retailers Must Overcome
Retailers of all sizes and across various industries face the challenge of quickly getting the right product in the right quantity in the right place at the right time. The roots of this struggle run deep. COVID-19 and the subsequent ecommerce expansion have exacerbated fulfillment issues, with many retailers’ supply chains or partner networks unable to support the operating model changes needed to scale pick-up and delivery.
However, the issue goes beyond the pandemic. Retailers were already struggling to deploy supply chain technologies in order to bolster efficiency and speed. The legacy systems managing supply chains—ERPs, CRMs, warehouse management systems, etc.—worked well within their area of expertise, but they struggle to work together. This dissonance has left retailers with fragmented and siloed landscapes and functions. For example, while retailers maintain multiple systems with customer and sales data, many cannot share that data between systems. And when systems cannot share data, the supply chain struggles to maintain the nimbleness and agility required to meet fulfillment expectations.
Moreover, retailers don’t want to abandon their legacy systems, as it would require massive investments and substantial organizational change. What they need is an overarching solution that implements every system and unlocks their full potential—providing real-time insights for better decision making. In a recent retail study from SAP, 70% of retailers view end-to-end visibility as essential to achieving digital supply chains. However, only 15% of them believe they can deliver it. What’s worse, 75% of retailers believe it’s critical to provide store associates with real-time inventory data, but only one third can do it.
New Supply Chain Disruptions
But what exactly is challenging retailers’ legacy systems to meet customers’ fulfillment needs and demands? Let’s investigate the ones bubbling to the surface.
- A change in customer habits, behaviors, and mentality—People are demanding more from their buying experience. I doubt anyone will dispute that, but the question is why? During the pandemic, our habits and behaviors changed, and so did the way customers interact with retailers. Fewer people are willing to hop to the store to grab a product they need. Customers are moving online, and so is their desire for instant gratification. If they see something special on social media, where many people spent time this past year, they want it as soon as possible. Therefore, ultra-fast fulfillment has become the expected norm rather than a differentiator.
- More complex and dynamic value chains—Sales and distribution channels are constantly evolving. Ecommerce and direct-to-consumer (DTC) models are adding increased nuance and complexity to supply chains. Furthermore, with enterprises outsourcing many supply chain and fulfillment operations to third parties, supply chain visibility has become increasingly complex to achieve and manage. Retailers must rapidly adapt or pivot in order to be agile and nimble enough to deal with this complexity.
- Reduced operating margins—In the highly competitive, price-elastic market, increased price transparency brought on by ecommerce has pressurized operating margins. To maintain healthy margins and halt product line commoditization, in which lowering your product’s price is the only way to compete, retailers must be highly efficient in supply chain operation and order fulfillment.
- Workforce constraints—The retail industry is the second largest private employment sector in the US, and last year’s upheaval has affected the lives of the retail workforce. Non-essential businesses shut down, driving multitudes of consumers to ecommerce sites and big-box stores. Workers felt overworked, unsafe, and unappreciated as retailers shifted labor costs across channels. Today, high demands for labor is driving up costs, so retailers must streamline processes and focus labor on the most value-adding activities for customers.
Despite retailers facing these challenges, thankfully technology is also evolving rapidly in this sector. Cloud services, IoT devices, AI/ML technologies, big data analytics, and more have opened avenues for retailers to become—and remain—agile. In my next blog, I’ll explore how retailers have leveraged cloud technologies to improve product allocation, provide increased automation, improve forecasting, and accelerate order fulfillment.