DISCUSSION
Will old-time retailing skills fix the supply chain mess created by COVID-19?
Written by Peter Charness
Photo: @faaphoto via Twenty20
Once retailers restart their businesses following the COVID-19 outbreak, they will be faced with challenges for which old skills may provide faster answers than highly automated and mathematically intense solutions.
The outbreak has created a series of anomalies within the management of the supply chain. Let's play out a few likely scenarios and look at why some touted solutions may not be up to the challenge.
On the demand side, recent sales history is completely skewed. For some essential categories, the numbers are off the charts. For others, sales numbers fall between zero and extremely depressed. The mix between online and stores is also well off of norms, a scenario that is likely to carry forward, perhaps to a lesser degree.
If your allocation works by using the last X weeks of history, chances are the next allocation is not going to be particularly useful. Typical replenishment systems can adapt to peaks and valleys, but recent sales tracking is beyond that scope.
Does your system recognize panic buying as a temporary phenomenon that will result in future diminished sales or, more likely, will it think that toilet paper sales uplifts are a real trend and increase orders just when demand drops off?
Even if your replenishment solution can be beaten into submission to produce realistic order projections, will it create orders for products unavailable in the time frame desired due to supply chain dislocations on a global basis? Constrained supply, substitutions and erratic delivery intervals are not friends of modern systems. While an "old fashioned merchant" might know how to manage these challenges, hoping that "set it and forget it" automated solutions will figure it out is not a strategy.
Now’s the time to teach your modern merchandising solutions some old tricks to be reactive at scale.
Restating history will be important for planning solutions. This doesn’t mean just replacing H1 2020 numbers with H1 2019 instead. Buying patterns are changing (even top to bottom ratios are different now), so product mix is likely to be different. The process will take thought, and each retailer will have to come up with the right logic for their own business.
Consumers are likely to be more accepting of substitutions if their favorite item is unavailable. Retailers may find that planning/replenishing/allocating at a category (or category attribute) level is a good strategy. While it may lack precision, it may just meet the customers’ needs.
Sales patterns going forward are a guesstimate away. Anyone who thinks they can predict what products consumers will buy — at what prices, where and in what depth — is a future retail Hall of Famer. Retailers might do better to build reactivity into their merchandise strategy. This might mean for example ignoring a demand plan and going to simpler replenishment strategies, such as model stocks or sales replacements. It may be better, albeit costlier, to replenish stores more frequently with smaller deliveries. Back up stock would be held back to replenish whatever stores or fulfillment centers need it most.
Maybe it's time to bring old skills to new problems.