Written by Barbara Bordas, Doug Tiffan
BACKGROUND
In the last 12+ months, retailers have experienced unprecedented supply chain and inventory challenges. A combination of closed factories, backed-up ports, container scarcity, and labor shortages took its toll on the industry. In this article we will take a look behind the scenes and try to understand the dynamics behind these volume shifts, and what retailers need to do to stay ahead.
The pandemic drove a shift to online shopping, and years of digital acceleration got compressed into months during 2020. It is likely that while retail is reopening, not all of that online shopping will shift back to brick and mortar. Consequently, since more purchases are now made online, retailers become aware of seasonal trends and sudden changes in shopping behavior much more quickly now. Retailers and Wholesalers need to be up to date on where their goods are, and what stage of production they are in so they can act on new trends and maximize the sales opportunity. This challenge existed before the pandemic, but the pandemic brought on unusual disruptors to the supply chain like never before. Covid driven workforce shortages caused a ripple effect for raw materials, manufacturing, and finished goods. Demand shifted into unexpected categories. All these factors put intense pressure on the “supply” in supply chain.
Besides the challenges of getting goods into the supply chain, the supply chain itself had issues. Earlier in 2020, the global pandemic caused global supply chains to suddenly stop. As the supply chain started up again, shipments had to be rerouted often facing capacity shortages, huge price increases, and the bottlenecks at major shipping points. Shipping delays were prevalent for the balance of 2020 and early 2021, and then the Ever Given grounding happened on March 23rd . The large container ship was grounded due to strong winds at the Suez Canal in route to the Netherlands. The ship had lied there for days, blocking around 400 other ships from crossing the Canal and causing big delays. Normally 40-45 ships/day go through the Canal. Maersk temporarily suspended the Spot, their booking system and the ship’s owners had faced a $916 million claim to cover the losses during the grounding. The ship was released from Great Bitter Lake, Egypt in the middle of July, where it has been since April 13, as the Egyptian court filed an application to arrest it. This blockage has caused shipping backlogs that could take months to unravel. Ikea has more than 100 containers on the ship. Even when the Canal got reopened the blockage has already triggered a series of further disruptions in global shipping. Some ships were redirected to the southern tip of South Africa, which added about 10 days to their journeys. The most impacted sectors were Western Europe and the US. The most affected goods are vehicles, electronic materials, raw goods like copper, the most affected areas are retail and construction. It has affected the supply chain of manufacturers greatly. For the US, kitchen, floor, ceilings and sub-components, rubber, pharmaceutical materials and car microchips were missed.
Ocean freight is ideal if the products are not time-sensitive and the longer transit time is acceptable. It is quite cheap, environmentally sound, and you can ship just whatever you want because of the large freight capacity. On the other hand, you need to wait more to unload the ship, the product strain is notable and you need to have a sea-sure packaging as well.
The canal jam has put a spotlight on JIT, or -just- in- time- supply chains, whereby items were transported to factories only as they were needed for manufacturing. This required firms to predict their demand accurately. Now, they are holding more materials to avoid shortages when disruptions occur. There’s no JIT cost saving that can outweigh the negative of losing sales. It was definitely felt at the minimization of inventory, too. Right now it is important to find ways to stock certain critical components to avoid complete shutdowns.
RECOMMENDATIONS
How can retailers tackle challenges caused by constraints in manufacturing and supply chain capacity? We share with you a list of best practice solutions that have been proven to mitigate risks currently faced by the retail industry:
1. Invest in modern forecasting solutions to better predict demand and ensure sufficient supply is on hand to meet the demand. With a better picture of demand, retailers can act quickly on trends and make adjustments to their supply chains to ensure goods arrive in time. Evaluate their options with real time data, and act quickly to recover from the delay and keep their cargo moving. For this, they need visibility from factory to point of sale.
2. Know the exact lead time needed to get products to the stores in time to meet the demand. That’s why integrated logistics information is so crucial for a retailer or brand. The right logistics set-up allows for fast reaction to demand and trends data into supply processes. This means you will have more efficient demand planning, transportation planning, stocking, and sales forecasts.
3. Integrate data into a single platform to monitor different parties in the supply chain together with real time updates. For supply chains as fragmented as those in the FMCG, retail or lifestyle industries, the risk of ending up with fragmented technology solutions is high. Having real time access to information will help logistics teams respond quicker to external changes.
4. Communicate! As we are seeing the furniture industries’ congestion at the ports of California, it is important to be transparent as much as possible and provide your customers with updates. If you keep your customers in the loop on their order status and progress, they are less likely to cancel an order. One furniture store has even begun to provide its customers with rental furniture while they are waiting on their delivery.
5. Diversify your catalogue and let inventory availability be the driver. Focus marketing on specific collections or product lines that will have a healthy amount of stock.
With manufacturers, distributors and retailers already preparing their Black Friday and Cyber Monday shopping campaigns, capacity constraints and other freight-related issues will continue right into the peak holiday season. US ports are struggling (mainly Los Angeles and Long Beach). Cargo ships have been delivering their loads later than ever this year. According to an analysis by Denmark-based Sea-Intelligence ApS, average delays are stretching to more than 6 days, while the rail and truck networks that disperse them across the country are strained with equipment and labor shortages. Heavy demand by US retailers to restock inventories depleted during the past year’s COVID-19 restrictions has swamped the largest US trade gateways and triggered heavy logjams of ships off the coasts.
CONCLUSION
In the shorter term, supply chain issues existed long before the pandemic, however, what the pandemic showed us is how the cumulative effect of mishaps along the supply chain all at once can cause massive disruptions. While we predict supply chain issues will continue for a while, the best defense a Retailer, Wholesaler, or Brand can use is to arm itself with up-to-date information to make informed decisions. Better demand forecasts can help focus efforts on goods that will make the most impact on sales. Real time supply chain information can drive routing and expediting decisions for those prioritized goods to make sure they arrive in time for the customer to buy.
In the longer term, 2022 will be ideally more predictable. We will have two years of data on how supply works with these disruptors so commerce should happen in a more optimized fashion even if there are lingering effects from the pandemic.