How can retailers best navigate supply chain turbulence?

Photo: Getty Images/tracielouise
Jun 15, 2021

Home Depot has contracted its own container ship as one step toward managing its supply chain crisis.

“We have a ship that’s solely going to be ours and it’s just going to go back and forth with 100 percent dedicated to Home Depot,” president and COO Ted Decker told CNBC. Other measures being taken by Home Depot include air freighting “smaller, higher value items” such as power tools and purchasing items on the spot market, despite costs up to four times that of contracted rates.

National Retail Federation’s (NRF) monthly “Global Port Tracker” report released last week showed record imports arriving at the nation’s ports as vaccines allow consumers to return to normal shopping patterns, but shortages of labor, equipment and shipping capacity are preventing retailers from capitalizing on that demand.

Jonathan Gold,  NRF VP for supply chain and customs policy, said in a statement, “Supply chain disruptions, port congestion and rising shipping costs could continue to be challenges through the end of the year.”

Chewy last week said elevated out-of-stock levels reduced first-quarter sales by an estimated $40 million.

“This is clearly a supply-driven situation, which we expect to abate in the second half of this year as additional production capacity comes online,” said Chewy’s CEO’s Sumit Singh on a quarterly call. “Until then, we will keep actively managing our inventory and using our recommendation engines to help customers find attractive alternatives.”

Costco on its May 27th quarterly call said the company is being impacted by container and pallet shortages. Container turnaround time from the U.S. to China and back has increased from about 25 days to 50 days.

“The biggest way we’ve handled supply chain delays is adjusted ordering and front-loading, if you will, of orders of many items,” said Richard Galanti, Costco’s CFO. “And we think we’ve got that pretty well under control. The feeling is that this will continue for the most part of this calendar year.”

A BBC article cited a virus outbreak in China’s Guangdong province and the ripple effect of the Suez Canal blockage among recent factors potentially incentivizing retailers to order holiday goods months ahead of traditional times.

DISCUSSION QUESTIONS: How long do you see supply chain challenges lasting, and what impact do you expect them to have on the holiday selling season? What mitigation measures or contingency planning would you advise retailers to take to reduce the impact of supply chain disruptions?

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"From a merchant perspective we need to get closer to the customer, faster to market, and be more mindful of the environmental impacts of buying too far ahead."

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14 Comments on "How can retailers best navigate supply chain turbulence?"

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Ken Morris

Retailers can actually turn global supply chain disruptions into a competitive advantage. Without going into too many details, the points of control include proper planning, creating options for alternative sourcing, establishing real-time monitoring, setting a crisis management model, and nailing the communications process. In short, we need to get better at supply chain visibility: real-time visibility we can share with our associates and customers. The glass pipeline is more important than ever. We also need sense-and-respond process management solutions that can notify us in real time where the pinch points are, so we can make quick decisions on alternate sources, transportation, etc. This needs to be solved—and quickly. Agile supply chain. That’s the goal. The end of the supply chain simply can’t be out-of-stocks.

Jennifer Bartashus

Supply chain resiliency has never been more important for retailers, especially because it looks like challenges will persist into 2022. Some challenges look more structural – like truck driver shortages – versus working through a backlog of inventory replenishment-type orders. Structural issues will take much longer to resolve, and may mean elevated costs will persist for a while. Holiday merchandise plans were completed already, there may be limited flexibility to change those plans to account for supply chain issues. Once again retailers with scale may have the flexibility to be able to accelerate shipments of holiday inventory (and have storage capacity) to ensure product availability.

Liza Amlani

Supply chain challenges are here to stay. As retailers continue to develop and buy product overseas, disruptors will continue to stress the supply chain. We will continue to have labor shortages, container and shipping challenges, and an increased time to market. We can’t predict a global pandemic or another Suez Canal disruption but we can change how we plan and fill our stores.

Retailers need to work together to find new solutions, to find local suppliers, to enable 3-D printing and digital tools for product creation, and get closer to the selling season. Buying product too far ahead could be disastrous as customers shift their purchasing behavior and retailers are left with excess inventory challenges.

From a merchant perspective we need to get closer to the customer, faster to market, and be more mindful of the environmental impacts of buying too far ahead.

Venky Ramesh

We will be seeing some wild swings happening in the coming months, where companies are going to increase their production capacities and order quantities to account for supply chain disruptions and delays. And in no time (end of the year) we will end up with excess inventories and capacities driving a downward trend in commodity pricing. We are already seeing some reversing in lumber pricing that dropped 40 percent since their May high.

Dave Wendland

As Albert Einstein so aptly said, “We cannot solve our problems with the same thinking we used when we created them.” It is time to rethink the supply chain and not only develop contingency plans to address the next disruption, but reinvent it entirely. What once worked fairly well will not work in our new economy.

Gary Newbury

Very true, unpalatable and inconvenient, but solid advice.

For too long the supply chain, its design and operation has been “invisible” to most. It has been subject, for too long to, “if it ain’t broke, don’t fix it!”

Time to change this strategy with a new holistic costing model that reflects some of the points Liza Amlani touches on and beyond the theoretical constraints of TCO.

Joe Skorupa

This is another example of the retail supply chain being more like a steel point-to-point cable instead of a flexible chain. Suppliers have done a great job selling retailers on the idea that creating deep exclusive partnerships (usually located continents away) is better than creating a network of suppliers that includes multiple alternatives. Exclusive partners won’t help if they can’t produce or deliver. Retailers need a fully digital supply chain ecosystem that can optimize manufacturers, suppliers and distributors (shipping, too) as situations change. The retail supply chain has other problems to discuss another day, but the current situation is extreme and is likely to last throughout the year.

Gary Newbury

Without saying it, you have correctly framed the circumstances for an agile supply chain design. It requires full three dimensional view, rather then “tidying up” a design based on the machinations and cost models of 1980s.

Scott Norris

We’re running out of paper, tagboard, and corrugated cardboard too – between the whipsaws of cleaning supplies/hygiene shortages, explosive growth in packaging needed for online shipments, and the climate-and-COVID-19-induced timber shortages, combined with the intentional closing of paper mills in the Before Times to constrict supply and raise prices. That’s all a North American problem, and it won’t resolve quickly; trees only grow so fast and the paper oligopoly isn’t going to start building new capacity.

Gib Bassett
The pandemic’s disruption on labor markets and impact on consumer behavior have the potential to cause a lot of pain for retailers focused solely on looking at this issue from a product supply perspective. First, retailers need to quickly understand if customers will predominately continue shopping online for the foreseeable future, or excitedly leave home to shop in person. So, immediate consumer and shopper insights. Having been at Macy’s two days ago on a Sunday, I can say the latter at least for my local store. Many retail workers no longer wish to hold these jobs and won’t return to them, meaning competition for scarce workers and higher labor costs that must be managed. This will certainly hit holiday season performance and margin. Second, retailers need to adapt whatever demand planning capabilities are in place to be more predictive, prescriptive and adaptive, to incorporate as many leading indicators as possible of shopper preferences and behaviors. That’s where things broke down in early 2020, causing so many furloughs, layoffs and bankruptcies. It’s now less about crisis… Read more »
David Mascitto

Retailers like Home Depot and Costco have the capital and clout to dictate shipping terms (or get their own ships!) but for mid-market retailers, this just isn’t an option. Air freight is a margin killer, so use sparingly (if there’s capacity of course). This leaves importers/brands/retailers with few options except diversify the base of manufacturing, order early, explore expedited sea freight options, shop around at different forwarders to see who has capacity and order more up front to anticipate future bottlenecks.

Craig Sundstrom

All these bromides — resiliency, alternative sources, contingency planning — notwithstanding, times like these are a slap-in-the-face reminder that sometimes things are beyond your control. When every shipping line in the world (perhaps literally) has a multi-month backup, and half the country tries to squeeze a two-year domestic sourcing shift into two weeks, there’s just not a lot you can do.

We’re familiar with the phrase “sh** happens”, well sh** actually means “shortage,” so far better to accept it and deal with the fallout. Do you ration sales or let it happen naturally by raising prices? And if you just plain can’t get certain things, think about offering alternatives … and explanations. In short, stop concentrating on the supply side you have little control over and work on the selling side that you do.

Kenneth Leung

I think supply chain challenge is going to last to Xmas. I think retailers need to communicate clearly and set expectations with consumers. This is not the time to overpromise and under deliver. With short term (hopefully) inflation it is especially important to give shoppers accurate information on product delivery schedules.

Melissa Minkow

Agree! And I’m especially curious to see how retailers who can’t afford to vertically integrate logistics like Home Depot will handle holiday.

"From a merchant perspective we need to get closer to the customer, faster to market, and be more mindful of the environmental impacts of buying too far ahead."

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