What are the strategies that retailers can adopt amid continuing supply chain problems

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November 20, 2021 5:41 PM

‘Investments in technology and automation in distribution centers are now at the forefront of most chief supply-chain officers’ agendas’

The moves that retailers should be making right now comes down to the basics of omnichannel fulfillment operations.The moves that retailers should be making right now comes down to the basics of omnichannel fulfillment operations.

The ongoing festive season has brought about an uptake in consumer spending across sectors. However, the disruptions in the global supply chain continue to be a challenge for retailers. The disruptions in the global supply chain are the result of a confluence of factors—which means that retailers have to take action on multiple fronts if they want their store shelves stocked and online orders fulfilled on time, the McKinsey on Consumer and Retail podcast highlighted. “Investments in technology and automation in distribution centers are now at the forefront of most chief supply-chain officers’ agendas,” John Barbee, partner, McKinsey Atlanta, said.

Retailers, on the other hand, have adopted strategies that have made a difference in their supply chain and given them competitive advantage. “One is around pricing and promotions timing. Whereas in some years Black Friday would be the day when the holiday season starts, this year we saw holiday pricing and promotions as early as October. Some of that “pull forward” to smooth out the demand curve has been important,” Sarah Touse, associate partner, Mckinsey Boston, stated. Another thing that retailers have done is to thoughtfully raise prices, Touse added. Some of the increases in logistics costs can’t be avoided even if you are a smart retailer, so understanding how much of that you can take to your bottom line and how much of it has to be passed along to the consumer—and then thinking about how to do it in a way that’s minimally disruptive to the consumer—has been really important.

For Barbee, there have been a few interesting retailer strategies that aren’t necessarily available to all retailers, but we’ve certainly read about some retailers—such as Home Depot, Costco, Walmart, Ikea, Target, and others—taking some of the shipping issues into their own hands, so it gives them a little bit more control. They’ve done this by leasing vessels to carry their containers from overseas.

Furthermore, according to Barbee, the moves that retailers should be making right now comes down to the basics of omnichannel fulfillment operations. Part one is that retailers should seek to maximise availability of product across all channels, offer convenient options for fulfilling demand, and make sure that the value of their product and fulfillment conveniences remains competitive in their market. Part two is innovate. During this pandemic, retailers have really pushed the envelope on innovation. Things like curbside pickup, buy online and pick up in store, and even concierge services—these things came to life faster than most retailers would have anticipated and fundamentally changed the way retailers think about deploying and testing new capabilities. So there will be a lot of experimentation with fulfillment models.

The importance of data was also highlighted. “This pandemic has made it clear that data are important. Our recent research shows that a typical company will lose more than 40 percent of one year’s EBITDA [earnings before interest, taxes, depreciation, and amortisation] over the next ten years because of disruption. Those numbers make the investment in data—to enable retailers to have a more dynamic supply chain—really seem well worth it,” Touse elaborated. Second, retailers can do a lot to shape customer demand. “As retailers think about how to push customers to buy online and pick up in store so that they can avoid some of that congested small-parcel market, and as they think about how to change shipping speeds and promises for different customer segments, it’s important to remember that customers react differently. There are things that retailers can do to shape some of those expectations,” Touse explained further.

Read Also: How both online and offline channels have helped companies to drive sales to pre-pandemic levels during the festive season

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