COVID-19 exposes retail’s supply chain shortcomings

Discussion
Photo: Getty Images/FG Trade
Jun 15, 2020
Tom Ryan

A new study finds future investments in flexibility, visibility and automation will be necessary to adapt to crises similar to the coronavirus pandemic.

The study from the University of Warwick and supply chain software provider Blue Yonder, based on insights from 105 different retailers from Europe, Asia and the Americas, explored retail’s reaction to supply chain challenges created by the surge in demand for essential goods, store closures, social-distancing adaptations and significant shifts to online shopping. 

Asked what proved to be the most effective supply chain strategies for dealing with COVID-19 situations, the top responses were:

  • Inventory strategy to buffer against disruption, 61 percent;
  • Multi-sourcing key products to reduce dependency on specific suppliers, 51 percent;
  • Visibility across the supply network, 47 percent;
  • Implement supply chain risk management, 38 percent;
  • Reliance on suppliers with agile production systems and distribution networks, 29 percent.

In a statement, Jan Godsell, professor of operations and supply chain strategy at University of Warwick, said using inventory as a buffer “provides the greatest certainty of supply but comes at a cost.” In contrast, relying on suppliers with greater agility “is a potentially more resource efficient and resilient response.”

Asked to identify apparent supply chain bottlenecks in the current COVID-19 crisis, the top answers were:

  • Warehouse operators are ill or in quarantine, 59 percent;
  • Store operators are ill or in quarantine, 48 percent;
  • Lack of visibility of capacity at suppliers, 46 percent;
  • Lack of demand visibility from customers, 44 percent;
  • Protective material (masks, gloves) for own employees, 40 percent;
  • Inbound flow of raw material parts and components, 36 percent;
  • Outbound transportation (delivery) to customers, 24 percent.

The study found that, with 75 to 80 percent of products seeing a demand fluctuation, retailers were slightly better at responding to decreases rather than increases in demand.

Said Mr. Godsell, “Whilst retailers found their supply chain processes and systems to be effective in responding to the demand fluctuations, many were still dependent on the human touch.”

DISCUSSION QUESTIONS: What should retailers have learned from the supply chain challenges faced with the emergence of COVID-19? Do you see investments in flexibility, visibility or automation standing out as most critical for retailers in handling such crises?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"There is a trade-off between flexibility and efficiency and retailers need to find the right balance."
"The challenge will be managing a supply chain that has “emergency” capacity required for a crisis without breaking the bank for logistics/inventory carrying costs."
"Optimizing manufacturing for pure efficiency and unit cost reduction also comes at a price. It takes time to restart production runs."

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15 Comments on "COVID-19 exposes retail’s supply chain shortcomings"


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Paula Rosenblum
BrainTrust

The way we phrase it is that the supply chain has become very efficient, but at the cost of agility. So I suppose agility and flexibility are synonyms.

I actually think this study should have been done with manufacturers and distributors as well. It was not clear to me (and still is not clear to me) how on the one hand, consumers are accused of “hoarding” and on the other, the only size packages of paper goods are 20 paper towel rolls and 36 rolls of toilet paper. That’s a hoard all by itself, especially when it’s a brand you’re just going to use to tide yourself over, rather than become friends with.

Is that a retailer problem? Or a problem up the supply chain? I am 99.9 percent sure it’s not a consumer problem. I’m really curious to find out.

Cynthia Holcomb
BrainTrust

Paula, I believe it is a retailer problem, in that retailers over the past two decades have created staggering assortments of products for consumers to consume especially online. Just like 36 rolls of toilet paper, consumers are now used to 5000 styles of digital dress offerings on almost every large scale retailer website. The sheer volume of warehousing massive product selection is far beyond anything possible in a physical store. It seems the pecking order leaves the supply chain and manufacturers to bear the burden of retailer folly, evidenced by the current plethora of retailer bankruptcies.

Critical thinking and a concerted investment in restraint are what has, is, and will be needed, pre and post COVID. Both manufacturers and the supply chain now have an opportunity to reset expectations of the burden they often end up bearing on behalf of canceled retailer orders, etc., the list goes on and on.

Suresh Chaganti
BrainTrust

Spot on, Cynthia. When retailers stock 4 brands, with 3 sizes, with Good, Better, Best variants, they end up with 36 individual SKUs per category. Pretty much the story of every retail shelf.

Contrast that with Costco — 1 size, 2 brands. A Kirkland variant and a leading brand in most cases. Complexity is drastically reduced, efficiencies everywhere.

Suresh Chaganti
BrainTrust

Overseas sourcing makes supply chain agility hard, but not impossible. The lead times are typically 12 weeks unless air freight is used. The retailers generally flex their muscle and demand just-in-time inventories, but the orders by distributors have to be placed with their manufacturers in China, months in advance.

So to counter the demand uncertainty, everyone in the chain increases safety stocks. The reality is, it is an extended supply chain where businesses need to have visibility and coordination with your supplier’s supplier.

Each situation is unique, but the answer lies in combination of:

  1. Developing agility in terms of delayed local manufacturing- creating labeling and variants locally,
  2. Near-shore on on-shore manufacturing for hard-to-predict demand products,
  3. Developing substitutes and alternatives.
  4. Tools and technology for better demand forecasting, end to end visibility from design to sourcing to delivery of product.
Neil Saunders
BrainTrust

There are definitely things that need to be improved in the supply chain. However, we mustn’t forget that the pandemic was an exceptional circumstance which created some exceptional short term shifts in demand. Some changes – such as greater inventory visibility, the ability to fulfill from stores, advanced shipping notification, and so on – are sensible investments that will pay dividends in a post-coronavirus world. However, changes to create a supply chain that can cope with all exceptional circumstances will likely not be cost-effective. There is a trade-off between flexibility and efficiency and retailers need to find the right balance.

Oliver Guy
BrainTrust

Issues in the supply chain were an early consequence of the COVID-19 outbreak. (I wrote about this on February 10th based on conversations I was having with retailers in January). Key to my point there was the subject of visibility – without visibility you cannot make any realistic decisions and the complexity of retail supply chains combined with data silos that have been created inside and across the expanded organization make life really difficult. While in the longer term, structural changes to supply chains and where product is attained from may take place in order increase flexibility – the biggest winner in terms of investment has to be focused on eliminating data silos to enable visibility. This is something that will pay off irrespective of supply chain complexity.

Brandon Rael
BrainTrust

The need for agility, flexible fulfillment options (BOPIS, curbside pickup, micro-fulfillment centers, etc) speed to market, and mitigating the last-mile strategies were already emerging supply chain themes pre-COVID-19. However, we were faced with extraordinary short term customer demands that effectively exposed some of the weaknesses of the supply chain that were built around predictive and prescriptive demand planning.

No single data and analytics integrated platform could have ever predicted the phenomenon we all experienced with the first few weeks of the pandemic. However, there are long term supply chain contingency planning strategies that could be implemented. Manufacturers, distributors, and retailers can no longer move forward with their outdated operating models. By establishing a convergence model, the three main players can effectively collaborate to build supply chain contingency plans, that center around changing consumer behaviors, that enables the safety stock supply levels to meet any future surges.

Andrew Blatherwick
BrainTrust

The retailers that had modern IT solutions helping them to react quickly, forecast better and understand what was happening at a local level were the ones that did best. It is not sufficient to have DC replenishment solutions, as the study suggests visibility throughout the supply chain is so important. If you have the ability to manage the whole supply chain from store right through to supplier, you have the visibility and capability to manage the flow of goods where it is most necessary and effective. Too often retailers have supply chains with separate systems for central replenishment and store replenishment which does not provide the visibility and flexibility required.

A retailer needs maximum flexibility in these situations, certainly multiple supply points and suppliers is part of a strategy and I am sure we will see much more of this going forward. However, the main problem is still that too many retailers have not invested in modern solutions and rely on dated software that is not fit for purpose.

Ricardo Belmar
BrainTrust
Ricardo Belmar
Retail Transformation Thought Leader
5 months 8 days ago

The main lesson learned is that retailers extracted maximum efficiency from their supply chains at the expense of agility and flexibility (the two are very tightly related and might as well be the same thing – flexibility creates agility). Achieving any improvement in the supply chain starts with visibility – without clear end to end visibility throughout the entire supply chain to your suppliers and the supplier’s suppliers, retailers won’t be able to effectively make improvements to the balance between agility and efficiency. There is a technology investment required to gain that level of visibility, in addition to automation although automation is certainly important on the execution side of the equation. The COVID-19 pandemic is an extreme use case and it would be difficult to plan for that scenario while maintaining complete balance between agility and efficiency, so perhaps that is an unreasonable expectation. However, there is definite room for improvement between retailers and manufacturers. Agility, visibility, and automation all have an important critical role to play in this equation.

Mark Heckman
BrainTrust

In my mind, the pandemic has underscored the costs and risks of allocating valuable warehouse and retail store space to items that do not find their way into shoppers’ baskets on a regular basis. Many of these infrequently purchased items are a product of projecting an image of “variety” to the consumer, which has some inherent value. But many others are the result of brand line extensions and trading deals that have nothing to do with consumer demand. For many retailers, it might be smart to re-think their approach to profitability — focusing on the “sell” rather than the “buy”; focusing on having more inventory of what shoppers buy on hand and a bit less of what they don’t.

Joe Skorupa
BrainTrust

Everyone agrees retailers need more agility and visibility in their supply chains, which to me sounds like words out of a dictionary. The question is how? I agree with Paula that the supply chain has become efficient in terms of cargo ships, freight trains, big-rig trucks, containers and crates. So shift the hard work of supply chain transformation to optimizing inventory at the commerce level. Focus on inventory in stores, fulfillment centers, e-commerce channels, digital platforms, last-mile delivery, and direct-to-consumer. This is where the rubber meets the road, where sales and profits are maximized. Do this by using dashboards with real-time visibility, folding customer metrics into forecasting, shift away from massive to local, and invest in advanced technologies ( IoT, AI, machine learning, blockchain, and robotics) to improve operational speed.

Ralph Jacobson
BrainTrust

The challenge will be managing a supply chain that has “emergency” capacity required for a crisis without breaking the bank for logistics/inventory carrying costs. This is especially true for situations like COVID-19 that literally had never happened to this degree in the past. Does it make sense for P&G to store massive quantities of Charmin “just in case” we get another “bad case of the flu” that shuts down the planet? That just does not make good business sense.

Peter Charness
BrainTrust

I divide the supply chain into two main functions. The retailer acquiring goods from their suppliers (traditional supply chain), and the retailer’s ability to deliver those goods once they own them to the customer, whether through a store, fulfillment center, to their house, the curb, wherever (and the reverse logistics as well). I call this the fulfillment chain.

Retailers are overall pretty good at the supply chain, need better visibility, and the possibility of moving quantities up and down as demand fluctuates, greater alternate sources of supply and some additional agility as others have pointed out. (Hopefully, COVID-19 is a one timer.) Regarding the fulfillment chain though, there’s not enough agility to deliver any inventory to any location where it’s needed, even 2 hour home delivery, and this is where much greater flexibility is needed. In many cases, once inventory has been positioned to its distribution point (say a customer fulfillment center), it’s hard to repurpose it to any other need, like shipping it to a store as replenishment.

James Tenser
BrainTrust
Let’s first concede that the recent disruption has exposed just how brittle our finely-tuned supply chain solutions really are. They are designed to optimize flow-through by adapting to small fluctuations in the demand forecast each day while eliminating as much safety stock as possible — because idle inventory anywhere is just money sitting still. In food, drug and mass channels, panic demand cleared the shelves suddenly for some products — leading to an unexpected replenishment demand surge, followed closely by a drop-off of apparent demand in those same items because there were no goods available to sell. Systems upstream were whip-sawed by this turn of events. Distribution centers were soon emptied of those items and manufacturing and overseas sourcing could not immediately respond. Hard lessons learned. Now the question remains — how to make the system more flexible and responsive to future unexpected events? I suspect part of the solution may lie in shortening the supply chain to eliminate extra lead time due to shipping. That is — make stuff closer to where it is… Read more »
GS1US Ryan
Guest
5 months 7 days ago

The COVID-19 response has brought to the surface many persistent supply chain challenges associated with a lack of visibility. What will likely stick in the minds of retail executives is not that the products they make were unavailable to be sold, it was the fact that the products could not get to the right place at the right time when consumers needed them.

In the months ahead, the retail industry will be motivated to adopt and use global data standards that allow for agility and efficiency, now knowing that these could have played a key role in locating products and anticipating how to fulfill consumer demand.

wpDiscuz
Braintrust
"There is a trade-off between flexibility and efficiency and retailers need to find the right balance."
"The challenge will be managing a supply chain that has “emergency” capacity required for a crisis without breaking the bank for logistics/inventory carrying costs."
"Optimizing manufacturing for pure efficiency and unit cost reduction also comes at a price. It takes time to restart production runs."

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