Time to Break Up a Broken Supply Chain

Many shoppers experienced break downs in the retail supply chain during the crisis. This exposed a decades-old, slow-to-change system that needs kicking into high gear.

Okay, so running out of Lysol and toilet paper were not unexpected in a pandemic. However, recovering from a short period of panic buying turned out to be a long-lasting nightmare for retailers. They discovered they had far less control than they thought over the loose aggregation of their “supply chain links.” Like it or not, the lifeblood of retail inventory is largely in the hands of third-party suppliers, manufacturers, distributors, wholesalers, CPG firms, and transportation companies.

Non-essential retailers discovered a different problem: oversupply in closed stores caused an immense inventory distortion that resulted in piles of unsold merchandise and warehouses filled with stock that was out of synch with selling seasons.

Moving forward, now is the right time for retailers to make plans to break up the supply chain into two important but separate parts. One is the “supply” part of the supply chain, which encompasses transportation, logistics and shipping. This part manages products from source to warehouse and manages inventory in containers and crates.

The second part is a dedicated area of responsibility that focuses on managing inventory at the commerce level, which includes stores, fulfillment centers, e-commerce, digital platforms, last-mile delivery, and direct-to-consumer.

This is where the rubber meets the road, where sales and profits are maximized. By separating it from the “supply” part of the supply chain, retailers will gain control over commerce-ready inventory and move their critical business processes closer to the consumer. 

Commerce Managed Inventory

Here are key recommendations to follow for retailers that want a commerce-managed inventory approach:

• Embrace digital transformation to upgrade supply chain systems so they can adjust to sudden disruptions and huge fluctuations in demand. Today, most retail supply chains are not designed to cope with rapid change. They are designed to set a plan in motion and let it run until it reaches its end point. These systems have limited visibility and require manual processes when disruption occurs. Moving them into the cloud puts them in a position for better visibility, collaboration and updating.
• Use dashboards with real-time visibility that monitors commerce-ready inventory as opposed to stock in cargo ships, freight trains, big-rig trucks, containers and crates. Technologies that can help make this happen include RFID tagging, Internet of Things (IoT) sensors, and computer vision.
• Shift to a customer-centric approach instead of one that is product-centric, store-centric or category-centric. This means integrating customer behaviors and demand signals with such core functions as forecasting, planning, allocation and replenishment.
• Emphasize local. This not only means focusing on granular customer data within cities, neighborhoods and zip codes instead of broad averages, but also moving inventory closer to customers through micro-fulfillment centers and dark stores.
• Simplify and shorten supply chains. This not only refers to shortening the distance between hubs and spokes, but also reducing the distance to many of the off-shore suppliers currently being used. On-shoring may become the new black.
• Enterprises that are at a higher maturity level can focus on advanced technologies to improve operational speed and agility. These technologies include IoT, AI, machine learning, blockchain, and robotics.

With shopper behaviors shifting at a rapid rate, the need for the retail supply chain to be digital, agile and transparent is more critical than ever. This was evident before the Covid-19 crisis of 2020.

What became evident during the crisis is that commerce-ready inventory management is the key to resiliency. When shoppers moved to low-contact purchasing, such as e-commerce, buy online pickup in store (BOPIS), and buy online pickup at curbside (BOPAC), many retailers shifted their businesses on a dime.

In the process, they discovered the painful truth that having a complex supply chain stretching from the source to the warehouse did not help them manage the most important step – putting a product into the hands of a consumer.

By separating commerce-ready inventory management from the “supply” part of the supply chain, retailers will gain better control over the most important part of their business.