Holidays and the supply chain
Holidays and the supply chain
Why are we talking about holiday supply chains now when it’s just halfway through the year and no one has yet gone on summer vacation?
Retailers started urging customers to purchase early for the holidays last year. As a result, somewhere in September, the Christmas season was brought forward.
We have a situation where the enormous imbalances between supply and demand at the product mix level can negatively affect the availability of products for B2B and B2C companies alike, especially as we start to approach the holiday season. Our supply chains are congested, and retail inventories are building up.
But what about rising retail inventory, you may be asking. Shouldn’t this lessen the strain on the supply chains for the holidays?
No. Here is where we are right now:
The product mix was not coordinated due to lost delivery.
Even while stockpiles have begun to build up, having the correct product mix remains an issue, creating a feast or famine scenario. Because of clogged supply networks, 2021 seasonal goods (such as sweaters and holiday decorations) sometimes came late and to some extent contributed to this inventory build-up. These postponed shipments have helped bargain merchants, where name-brand goods are sold for steep prices. The demand for the approaching winter and holiday season will be reduced, at least in the categories that are most heavily impacted by this seasonality, if buyers choose to purchase these holiday products at a significant discount. In preparation for decreased demand, retailers have already curtailed orders. However, there are a lot of elements at play, which we will touch on below, making it very difficult to get the blend just right.
Fashion goods with longer lead periods are less trendy.
Basic apparel products have a more consistent demand stream than fashion goods, which must be prepared months in advance for a relatively brief season. Retailers must place these fashion products on backorder (by a month or two), which makes anticipating fast-changing patterns extremely harder because lead times are as uncertain as they are right now. This further misaligns the product mix with what consumers would want, leading to an increase in markdown activity.
With hyperinflation, consumer purchasing patterns are altering.
Retailers are just so able to withstand rising expenses. Accordingly, up to 8% of the sale price of a pair of shoes goes toward transportation expenses, up from 1% just three years ago. With more establishments and nations alike easing their entry/exit criteria linked to COVID testing, consumers are now tightening their purse strings and turning their attention to experience expenditure, such as travel and entertainment. All of these will further alter the demand mix from what is typical historically.
More so than the lead time itself, you should pay attention to the fluctuation in the lead times.
Over the past 20 years, retailers have become accustomed to lengthy lead times, particularly for the categories they import from Asia. The actual issue, though, lies in the lead time’s inconsistency and unpredictability. Retailers have deployed several planning and decision support tools, but they are not designed to withstand the present levels of fluctuation. Modern probabilistic simulation, scenario planning, and optimization tools are required for this. However, enterprises should think about enhancing current investments with these next-generation technologies rather than performing a complete rip-and-replace.
To increase product availability, and enable end-to-end decision-making.
While retailers have made significant investments in systems for merchandise planning, transportation management, warehouse management, distributed order management, and other areas over the years, most of the information is still relatively compartmentalized. The silos prevent quicker decision-making since it takes a long time to manually piece together information using Excel spreadsheets. As a result, there are inefficiencies and ongoing, low-visibility firefighting. For instance, even if the system may have enough inventory, ensuring that the merchandise is placed correctly at the point of sale necessitates the coordination and full integration of incoming logistics capacity, warehouse placement, distribution capacity, and store-level delivery. To assure on-shelf and online availability, a supply chain’s design, planning, and decision-making must be based on these end-to-end principles.
First, comprehend your cost-to-serve, then improve it.
Cost reductions become a top goal in an atmosphere of hyperinflation. Retailers sometimes find themselves needing to mark down a sizable number of items because of the increased lead periods that force them to “guess” on the best selection months in advance compared to how they previously planned to source. This makes nearshoring a more attractive alternative, at least for a certain class of goods, when paired with increased ocean carrier cost. To evaluate such nearshoring possibilities, most merchants, however, find it difficult to put together a precise picture of their cost-to-serve baseline. You can gather the essential data and add context to it with the aid of new supply chain technologies, which will provide you with a linked end-to-end perspective of your supply chain and the resulting cost accumulation. Once the baseline is established, you may optimize and assess a range of solutions to strike a balance between cost and service. Returns and reverse logistics must be taken into consideration along with a portion of the total expenses.
Consider providing a consistent consumer experience throughout the supply chain.
I continue to observe merchants requesting that customers download two distinct apps — one for physical and mortar stores and the other for internet buying. While providing unified customer-facing applications is the first step, most retailers still have very fragmented backend supply chains linking their storefronts to distribution networks. Retailers will pass on the chance to fully balance cost, service, and customer experience if they do not use the network holistically and implement delay tactics. You should take a comprehensive approach to network architecture when planning for inventory carrying capacity in shops and distribution facilities as well as when establishing delivery routes to markets.
Utilize dynamic pricing to influence and reorient demand.
One important tool that merchants may employ to alter the demand signal is pricing. However, as merchants battle with quickly altering demand patterns, keeping an eye on the demand signal, and assessing it for price sensitivity is essential. The cost-to-serve can help maintain profitability while maintaining adequate inventory movement when combined with dynamic pricing.
Retailers must prepare for what may be one of the most difficult Holiday seasons overall. They can be better prepared thanks to the aforementioned information.
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