Navigating Bottlenecks and Bullwhips in the Retail Supply Chain
3 Steps to Better Handle Supply Chain's COVID Malaise
Manufacturing and transportation bottlenecks occurring domestically and globally, combined with the unleashing of pent-up consumer demand, have resulted in a bullwhip effect reverberating up and down the retail supply chain.
With Black Friday / Cyber Monday (BFCM) starting this week, let’s look at current challenges and some steps retailers can take to prepare for this season and next.
High costs and hurdles
Getting products manufactured, transported to the U.S. and into the hands of consumers has never been so complex and costly.
Long-term supply chain issues exacerbated by the COVID-19 pandemic, coupled with new challenges related to limited transport capacity, labor shortages, and equipment shortages are confronting retailers at a time when consumer demand is surging.
Manufacturing plant shutdowns that began in early 2020 continue as highly contagious COVID variants spreads worldwide. Given the COVID crisis in China last year, companies shifted production to other Asian countries, including Vietnam, which has become the second-largest supplier of apparel and footwear to the U.S.
Now Vietnam has been facing its own COVID woes with low vaccination rates and a rising number of cases. As reported by The New York Times, Nike lost 10 weeks of production in Vietnam from July 2021 to September 2021 because of COVID-related manufacturing disruptions in the country.
Even if companies can get their products produced, they are being blocked at every angle when attempting to import them into the U.S. and transport them to domestic distribution hubs.
Coined by Reuters as “Containergeddon,” container ships are piling up off the ports of California, New Jersey, New York, Texas, and Georgia because there are not enough workers or equipment to offload them. At the same time, ocean transport costs are skyrocketing with bulk cargo ship operators charging more than $20,000 per shipping container.
Other retailers are turning to the air to bypass congested seaports and get products into the country faster, but that too comes with limited availability and high prices. With fewer commercial flights carrying passengers, there is less cargo space for rent on planes.
Furthermore, the capacity of an airplane is far smaller than that of a 400-meter-long container ship capable of transporting 20,000 twenty-foot equivalent units (TEUs). There is no way that air transport can satisfy retail’s vast transport needs.
Truck driver shortages have plagued the retail supply chain for nearly two decades, with limited capacity steadily increasing the cost of land transportation. According to the American Trucking Associations (ATA), 71.4% of all freight tonnage is moved on the nation’s highways but the field is short 60,800 drivers and this shortage is expected to grow over 160,000 by 2028.
3 steps retailers can take
If a retailer finds itself at this point in the year without enough inventory to satisfy anticipated consumer demand during the holiday season, there is little that can be done from a product availability perspective. But there are steps that retailers can take to ease the impacts of the bottlenecks and bullwhips on this year’s holiday season and prepare for 2022 and beyond. Here are three of them:
- Bolster customer support. If a retailer has inventory challenges and knows it will have trouble meeting customer demands through BFCM and the rest of 2021, the best place to start is with customer service. Think of it as a triage operation. Invest in all customer-facing channels: Call centers, online support, social media platforms, etc.
When frustrated consumers contact the company asking for the status of a product, they ordered six weeks ago and haven’t received, this helps ensure there is a unified response and remediation plan in place across all channels.
And be proactive with your customer communication. If you know there might be a delay or disruption with an order, or inventory levels might be lower than you thought, be forthcoming with your customers. While you might hear some grumblings, those will be much tamer than if you aren’t forthcoming.
- Improve inventory visibility. The traditional model of separate inventory pools for online and in-store orders establishes barriers that exacerbate inventory shortages. Look to leveraging technology that unites inventory resources across multiple channels; this unified view of inventory across stores and distribution centers is quickly becoming a need-to-have to straddle demand as channel sales propagate.
In the near term, work with your supply chain teams to understand how you can fulfill demand across the network. For the long term, retailers need to have the systems and strategies in place to properly manage across these inventory pools.
- Increase fulfillment efficiency. While there is little most retailers can do to get products from manufacturing sites to their warehouses faster in the current climate of complexity, they can increase the speed at which existing inventory flows from the warehouse to customers.
For those retailers still relying on manual, paper processes the transition to an automated warehouse management system can improve order accuracy and speed picking/shipping for greater efficiency, lower operating costs, and improved customer satisfaction. This may not be a solution that you can flip a switch today, but retailers need to strive to continue to improve fulfillment.
The road ahead
Even if COVID-19 disappeared this week, none of the current supply chain problems are going away any time soon. Manufacturing facilities can only produce so much product, and boats, airplanes, and trucks can only go so fast and carry so much.
It will be a slow crawl for the retail sector to put these challenges behind it. This means it’s time for retailers to get their houses in order so that they have the foundational pieces in place for when that crawl turns to a walk and then likely a sprint into the next BFCM.
So, while retailers can’t solve all their problems with a flip of a switch, they can invest in people, processes, and technologies to better handle current obstacles and new ones that arise down the road.