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Retail Business Review | Friday, April 22, 2022
Over the last 24 months, retail supply chains have gained more media attention and public awareness than in recent history
FREMONT, CA: Despite the early good media attention, supply systems were already collapsing under the pandemic's multifaceted obstacles. For the last decade, retailers have hailed investments in supply chain agility, yet when their inventory reserves depleted, their supply chains were anything but nimble and agile. It became clear that retailers had planned their supply chains to solve foreseeable and specific difficulties but had not made the necessary investments or completed the end-to-end structural transformations to achieve true agility.
Supply networks continue to draw attention as we approach the 2021 Christmas season, but this time, bottlenecks in the global supply chain impact shelf availability.
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Constraints in the supply chain, ranging from raw material supply to manufacturing, ocean/port capacity to over-the-road (OTR) trucking capacity, and down to store and warehouse labor for replenishment, jeopardize retailers' ability to keep shelves stocked and capitalize on their best-selling season. Constraints with physical assets contribute to the difficulties. However, the most crucial difficulty confronting today's supply networks is labor availability. For instance, the American trucking association forecasts an 80,000-strong driver shortage1. Numerous reasons contribute to labor restrictions, including labor withdrawal from the workforce, movements away from retail and into other industries, noncompliance with COVID immunization requirements, union rules, government regulations, etc.
Given these obstacles, most businesses are in for a difficult holiday season in terms of seasonal sourcing products promptly. The associated difficulties may include missed sales due to stockouts, late deliveries and dissatisfied customers, and unscheduled markdowns. While some large merchants will be able to mitigate some of these issues (by investing in air freight or chartering ocean vessels, for example), the majority will not afford the added expense.
Many will update their five-year strategic plans when merchants examine these occurrences following the holiday season. Successful merchants will perform a thorough root cause analysis of their supply chain difficulties in 2021 and will almost certainly come to the following conclusions.
Significant demand surges are a fact of life. The excessive reliance on human capital and severe underinvestment in automation provide challenges in handling demand surges; these difficulties are unlikely to resolve themselves.
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For decades, the existing transportation network has remained primarily unchanged. While technology has disrupted and transformed other sectors, the transportation business has largely been left behind. Amazon anticipated this, as seen by their substantial efforts in developing their land and air fleets and their more grandiose visions of drone delivery.
Reverse logistics is a cost-cutting measure and environmentally wasteful. This is true for product returns and container returns to Asian ports. US port backlogs have led to container ships returning empty to Asia in the latter situation. They do not wish to wait for further delays in empty loading containers. When this problem fully appears, anticipate the supply chain bottleneck to shift to China.
In the short term, retailers' focus will be on resolving immediate issues such as replenishing store shelves quickly, managing inventory associated with late deliveries, and balancing the desire for increased inventory holdings with the cost and financial implications.
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