November 6, 2024 in ARTICLES
Navigating Unpredictability: How Retailers Are Overhauling Supply Chains
It feels like a distant memory, but just a few years ago, panic buying, empty shelves and scarce essentials were a common sight across Europe. The COVID pandemic confronted us with how fragile global supply chains are, especially in the retail industry. As their just-in-time supply chains unravelled before their eyes and faced a storm of challenges, European retailers learned vital lessons. To maintain consistent operations and keep up with changing consumer demand, preparedness, operational agility, and the power of technology are critical to keep everything running smoothly from source to shelf. So, three years later, are we seeing these lessons put into practice today as supply chains continue to face disruptions?
CURRENT CHALLENGES AND TRENDS
Today, global supply chain disruptions persist, albeit in other forms. Therefore, retailers are still wrestling with balancing lean inventories with risk management through stockpiling. During the pandemic, the primary focus was on getting products to market by any means necessary to keep up with skyrocketing demand. This continued even when consumer demand slowed down, leading to high inventory build-up, which became a significant concern for many CEOs and CFOs, as holding costs and cash flow issues caused considerable pressure on financials. Consequently, companies are resorting to measures such as refinancing, ordering less or renegotiating payment terms with suppliers. The latter requires careful handling to avoid damaging supplier relationships or causing a ripple effect.
Another notable trend is the gradual shift in sourcing from China towards new areas. This shift is driven not only by risk management considerations but also by cost and lead time to market. Although this transition is slow, it could accelerate if the reliability and cost-effectiveness of East-West supply chains do not improve. However, before China’s impressive production output can be replaced, significant investments in infrastructure, factory output, and regulatory compliance in emerging manufacturing areas are necessary.
NAVIGATING A INCREASINGLY VOLATILE WORLD
The future of global supply chains appears unstable, with little hope for improvement soon. Geopolitical and social tensions are spreading, natural disasters exacerbated by climate change are more frequent and political uncertainty is leading towards more isolationist policies around the world. These factors create a volatile environment where disruptions have become the new normal, particularly for critical shipping arteries like the Suez Canal and Panama Canal, whose viability is increasingly challenged by climate and war impacts.
To navigate these challenges, retailers must focus on several key strategies:
1. Technology Adoption: Advanced technologies like cloud-based supply chain management systems enhance visibility and traceability, enabling better decision-making and risk management. For example, real-time inventory tracking across the supply chain enables timely replenishment and reduces the risk of stockouts or overstocking.
2. Operational Agility and Flexibility: It is crucial to develop agile supply chain practices that allow quick adaptation to changes in demand and supply conditions. This includes flexible contracts and diversified supplier bases. An increasing amount of apparel brands have successfully implemented agile models through nearshoring, allowing them to respond swiftly to consumer demand, reducing the size of their inventory and potentially offsetting higher manufacturing costs by being able to sell more products at full price.
3. Plug-and-Play Sourcing: Establishing a sourcing footprint that supports rapid shifts in production and vendor locations can help mitigate risks from regional disruptions.
4. Supply Chain Ecosystem: Building a robust ecosystem that fosters collaboration and information sharing among all stakeholders can enhance resilience and efficiency.
5. Data-Driven Decision Making: Leveraging data analytics to understand the true cost of sourcing and simulate disruptions can help retailers make informed decisions and prepare for future challenges.
By adopting these strategies, retailers can create more resilient supply chains capable of withstanding the uncertainties of today and beyond. The ability to adapt and innovate will be crucial in navigating the complex landscape of global supply chains in the future.
CONCLUSION
Lessons learned from past global disruptions have helped promote supply chain departments in the retail industry from a cost centre to a strategic business enabler. That being said, today’s challenges are increasingly volatile and complex. To navigate this uncertain and ambiguous playing field, retailers must continue to invest in supply chain technology, develop agile practices, and utilise data analytics to enhance resilience. As we progress, the capacity to challenge the status quo, adapt and innovate will be key to managing the intricate and unpredictable nature of global supply chains. Maintaining a business-as-usual mindset could result in falling behind during the next disruption and dealing with the consequent costs.
APL Logistics offers tailored order management solutions designed to maximise revenue and profitability, as well as optimise efficiency and adaptability. Our Order Pilot solution combines advanced machine learning technology with industry-leading expertise to provide advanced order planning and control. Through predictive analytics and scenario planning, businesses can drive responsiveness, manage supply and demand fluctuations, identify potential bottlenecks, and proactively adjust their planning to mitigate risks – before executing.
By Ernst Martens, Supply Chain Development Manager at APL Logistics
ernst_martens@apllogistics.com
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