In 2020, global supply chains were faced with unprecedented challenges, the Covid-19 pandemic left the world economy in shambles, with countries imposing travel restrictions and other policies in an effort to fight against the rising cases. Many previously overlooked infrastructural supply chain problems surfaced during this period of time, including insufficient medical support systems in some countries. For the retail industry, the pandemic laid bare many vulnerable supply chain issues that fell apart quickly at the beginning of this event.
Travel restrictions slowed cargo flows between destinations, lockdowns forced retailers to close down most of the physical stores, which caused sales to plummet initially. It also caused panic among the consumers, leading to supply shortages for sanitation products. Retailers struggled to find alternative solutions to sell products amid the fear of Covid-19. This led to a series of supply chain management challenges and solutions that retailers have to deal with throughout 2020. Many retailers who have already embraced new methods of transaction found themselves in the comfort of a fully developed e-commerce platform through BOPIS (buy and pick up from store) and curbside pick-up, while others desperately tried to keep up.
Besides physical disruption, retailers also suffered from the sudden change in consumer lifestyle and behaviors during the pandemic. Certain product category demand surged and some struggled to stay afloat, especially non-essential items such as apparel and jewelry. Many retailers have gone bankrupt or have been forced to shut down all physical stores.
Moving into 2021, though vaccines have been developed and life is slowly getting back to normal, the disruptions to the supply chain have not completely subsided. Supply chains are dealing with the aftermath of the pandemic that may well last for another two or three years, and the same fundamental supply chain issues retailers dealt with last year are pretty much the same this year.
Here are a few major supply chain issues that we are dealing with this year:
Continuous delivery delay
One of the biggest issues in supply chain management is undoubtedly the logistics during the pandemic. Retailers’ supply chains were severely impacted by the pandemic due to surge demands in certain categories of goods and lack of air freight capacity which led to inevitable delivery delays. This phenomenon is likely to continue well into 2021 as the pandemic continues to surge and travel restrictions remain intact in certain countries.
As the pandemic induced new consumer behaviors, products such as electronics, home goods, cleaning products as well as dry groceries are highly desired by shoppers. Toward the end of 2020, an overall 18.4% US import surge was observed in multiple categories of products. Due to lack of air freight capacity and shortage of empty containers, however, many products are backed up in the system.
Besides air freight, truck freight is also strained for the same reasons. In 2021, truck freight is seeing significant growth on the supply side due to increased demands. Recruiting drivers to transport these goods will be a continuous challenge throughout the year.
This means consumers likely have to wait longer for deliveries and face potential higher shipping costs. In order to maintain their margins, retailers may have to adjust their pricing strategies to reach a happy medium. Currently, the state of the pandemic is still murky, and not knowing what or how demand is going to be like in the next few months will be one of the main supply chain issues for retailers to tackle.
Increased Resilience
Resilience and sustainability are some of the more important global supply chain challenges that retailers tried to tackle in the past few years. The ultimate goal of a supply chain is to deliver the right product, at the right time, and to the right person while maintaining high-profit margins.
To achieve that, retailers have turned to methodologies such as Lean Supply Chain and Just in Time Inventory which center around strategies that align raw material orders from suppliers directly with production schedules. These strategies aim to increase efficiency and reduce cost by minimizing inventory space, which requires a highly accurate demand forecast in order to achieve. When unexpected incidents such as a pandemic or the recent Suez Canal blockage happen, these strategies can cause many supply chain management problems that are disruptive to the entirety of the operation.
In the last few months, businesses have definitely been rethinking their lean supply chain networks, including going back to a model with more built-in redundancies, buffer stocks, as well as risk tolerance. This will remain a significant supply chain challenge throughout 2021.
Flexible Supply Chain
Companies with supply chain problems tend to have an inflexible supply chain – They built the supply chain system 20 years ago, and they are still using the same process nowadays regardless of the market condition. The supply chain has low visibility, low tolerance for risk and changes within the system. This can cause serious supply chain problems when a disaster occurs, such as the Suez Canal blockage.
Imagine having your carrier stuck in the canal with no way of tracking product status. You don’t have the ability to re-plan due to your lack of visibility in your supply chain. What are the products getting stuck? Are they a high priority? Can you reach out to your other suppliers for help? To answer all of the questions above you need a high level of flexibility in your supply chain. A flexible supply chain also allows you to see demand spikes in your product portfolio and react to them accordingly.
Supply Chain Talent Acquisition
In the past year, many retail businesses have been disrupted by the pandemic, resulting in a massive layoff in the workforce. As businesses slowly recover, hiring and retaining a new group of supply chain talents will be a challenge that will persist well into the future. It is a supply chain issue that requires preventive measures, including partnerships with universities and organizations to provide educational programs for future industry professionals.
Increased Costs Throughout the Supply Chain
Profit margins are under pressure as costs creep up throughout the supply chain network. These costs come from many areas, and a lack of visibility and accountability for reducing them can result in rising operational expenses.
Major contributors to increased costs include:
- The rising price of fuel to transport goods by road, sea, or air
- Increasing commodity prices raising the cost of raw materials
- Higher labor costs from suppliers and manufacturers
- Complex international logistics leading to higher charges for storage, transfer, and management of products
Supply Chain Complexity Due to Multiple Channels to Market
Consumers buy products across multiple channels, and as routes to market increase, the underlying supply chain must adapt. Supply chain managers need to develop variations on supply chain processes to address each of the channels:
- eCommerce websites selling directly to consumers require fast last-mile delivery and local logistics.
- Traditional retailers and wholesalers need large storage locations close to major metropolitan areas, combined with accurate inventory control to ensure product availability.
- Third-party marketplaces like Amazon require a deep understanding of fulfillment options and close compliance with their terms and conditions.
- Dropshipping retail requires fast international services so that consumers receive goods quickly.
Supply chain managers must manage multiple supply chains, third parties and other organizations to ensure a good end customer experience, regardless of how they order and receive products.
Consumer Demands Drive Need for Improved Speed, Quality and Service
Consumers have never had more choice, and every industry is facing disruption. Every touchpoint with an end-user needs to be focused on providing excellent products and services. Quality and speed are becoming as important as pricing when it comes to purchasing goods:
- Consumers want retail goods immediately and online goods within a few days.
- Products must meet the quality requirements demanded by consumers.
- Raw materials, goods and finished products must meet safety and other compliance regulations mandated by law, in all countries where they’re available.
- The environmental sourcing of goods is becoming more important to ethically-aware consumers.
The most successful products are those that meet consumer requirements of quality, availability, and price. The underlying supply chain is vital to meeting those needs.
Risk in the Supply Chain Creates Pressure
International complexity, environmental changes, economic pressures, and trade disputes all put pressure on the supply chain. This pressure can easily turn into risks and issues that snowball throughout the network, causing significant problems.
Conclusion
The past year has shown the importance of creating an efficient and reliable supply chain. This means creating a seamless process to communicate and collaborate with your supplier partners. TradeBeyond’s Procurement Software allows retailers to find new products and work with their existing suppliers to plan out upcoming ranges and keep important documents and data in one centralized location.