New research shows the business disruption caused by COVID-19 has resulted in four out of five (82%) retailers changing their approach to stock management, with a third (33%) of retailers developing contingencies to protect against supply chain disruption.
Advanced Supply Chain Group’s managing director, Claire Webb, has more than 13 years’ senior experience in retail, spanning both high street and ecommerce. Now, as Government scientists call for another national lockdown, she takes a look at how retail supply chains are adapting to the so-called ‘new normal’.
Following conversations and first-hand experiences working with high street and ecommerce retailers, we commissioned research of 200 senior retail professionals to determine how COVID-19 disruption had impacted stock management and supply chains.
One of the most prominent trends identified by the research is ‘Diligence Against Disruption’. This involves retailers developing supply chain contingencies such as increasing the number of suppliers they source goods from, working with a larger number of logistics providers to spread risk and also increasing overall stock levels.
On first glance, it’s perhaps not really surprising that retailers are increasingly focused on risk management and creating contingencies, given the challenges of keeping goods moving during recent months and amidst the ongoing uncertainty of lockdown restrictions. However, this trend is particularly noteworthy because it shows a real change in strategic thinking.
Striving for perfection
Retail, and especially FMCG, has for many years widely embraced the mindset of ‘get it right first time, every time’. It’s a highly effective notion stemming from the principles of Six Sigma – the method designed to improve performance capabilities. The aim being to achieve zero defects, while optimising quality and efficiencies to ensure that standard operating procedure is the most effective and profitable route to market.
This approach has overshadowed the urgency and importance of having a robust Plan B. It’s worth highlighting here that this isn’t to say that retailers did not plan for supply chain disruptions or disregarded risk prior to the pandemic, but that the vast majority of their attention was so focused on perfecting Plan A, that it significantly detracted from how much time, resource and capital was invested in back-up plans.
COVID-19 has proved a stark reminder that developing a Plan B requires careful due diligence.
The research really crystallised the widespread effects of coronavirus. It showed that it affected stock management amongst nine out of ten retailers.
This meant lost opportunity for retailers on two fronts. The first being lost sales. 83% of retailers saw an increase in demand for their products during lockdown, but around a third (34%) of these businesses were unable to meet this demand because they ran out of stock and were unable to quickly replenish levels.
The second type of lost opportunity was being unable to address dips in demand for products. Of those that saw a decline in demand during national lockdown, 31% experienced significant depreciation of more than half the retail value of stock, while 15% had to completely write-off stock.
Such an impact is now seeing retailers prioritise creating contingencies to protect against similar supply chain disruption in the future. They want to be a position where they can quickly respond to spikes in demand and also be able move stock to other channels to be able to extract value before goods become worthless.
This involves the creation of contingencies including retailers increasing the number of suppliers they source from and also the number of logistics partners they work with to move goods through supply chains. These can seem like quite straight-forward steps, but they can actually prove quite complex as they require the alignment of different systems and processes to avoid compromising the accuracy and efficiency of stock inventory management.
Open supply chain software
Smart, connected and bespoke technologies will prove crucial to retailers in addressing the challenge of harmonising supply chains that accommodate increasing numbers of third parties. As well as leading to heightened investment in end-to-end supply chain software, we can expect to see more collaboration and integration similar to what’s happened in the finance sector with ‘open banking’.
‘Open’ software will mean that supply chains continue to effectively share stocky inventory data, irrelevant of who is handling the goods and any changes in suppliers. This will prove particularly important during a period of disruption, for example, when a back-up supplier is called upon to suddenly add their products to the supply chain to avoid stock shortages.
A new lean
Beyond more sophisticated advances in software, our research has shown a trend of retailers adjusting timeframes to address COVID-19 disruption. Retailers have allowed longer lead times on stock ordered (41%) and also extended customer delivery times (40%). We can expect these changes to be relatively short-lived and replaced by a longer-term trend of evolving lean stock inventory management practices.
Consumer patience with longer delivery times will be quickly be replaced by an expectation that retailers need to adapt to new ways of working.
The pandemic showed how lean many supply chain models are. They are designed to get the right products to places, at the right time, with supply closely matching demand to avoid margin dilution. This leanness was quickly affected by lockdown and this is likely to significantly change lean practices like ‘Just in Time’ because they are less able to cope with increasing unpredictability – they quickly become ‘just out of time’. Supply chains will evolve as retailers aim to better mobilise stock, keeping it more agile to sweat its value across multiple routes to market.
Undoubtedly, supply chains will continue to evolve in the coming months as Governments, businesses, consumers and economies still feel the effects of COVID-19. This is prompting more and more retailers to prioritise those ‘what if’ strategies and to invest more in due diligence to strengthen the resilience of their supply chains.
Click here to read more about the five trends and download the full report ‘Retail Supply Chains in the ‘New Normal’; Evolving from Disruption to Delivering Excellence’.