Many retail industry giants are adopting strategies to combat changing consumer habits and transforming their supply chains to prevent obsolescence. Walmart recently announced plans to ramp up automation across all of its regional distribution centers to improve in-stock levels, inventory accuracy, and serve the needs of customers, regardless of whether customers shop in stores, or online using pickup or delivery services.
On the flip side, supply chain transformation is not something that retailers can easily adopt, and getting it right is challenging. Take, for instance, Bed Bath & Beyond's endeavor to implement an omnichannel retail digital transformation strategy. They faltered because they didn't understand the intricate dynamics of the e-commerce and in-person marketplace. Earlier in 2023, the big-box retail chain filed for Chapter 11 protection.
But with proper planning and resources, all the while comprehending the key factors underpinning supply chain transformation success, retailers can drive growth, mitigate risks, and optimize costs. Following are four strategies for supply chain leaders to consider:
Invest in Distribution Center Automation
Distribution center automation is a strategic response to the recruitment and labor challenges that retailers confront in their supply chains, especially in cold chain distribution centers where the labor shortage is acute and unrelenting. Robotics and sortation systems can streamline various supply chain processes, enhancing accuracy, safety, and sustainability while improving inventory management, order fulfillment, and supply chain visibility. It can also be instrumental in solving capacity challenges within an operation.
Although the initial capital investment in automation may seem daunting, my personal experience and research have shown that automation yields substantial returns. And it doesn't necessarily require building new facilities or implementing revolutionary automation. Identifying and automating bottlenecks within existing distribution centers often results in incremental yet substantial benefits.
Prioritize Demand Planning
Retailers must prioritize high-quality data and technology over relying solely on human intuition or experience to achieve accurate item-by-item sales forecasts. Sharing this data with suppliers allows for optimization. This approach can eliminate billions of dollars in unnecessary inventory (on average, 15% is a good estimate) while simultaneously improving in-store product availability. Implementing better demand planning processes enables retailers to forecast customer demand, ensure better supplier readiness, and implement stock keeping unit (SKU) rationalization, which involves optimizing the number of unique products offered. This strategy streamlines operations, improves efficiency, enhances profitability, and aligns offerings with customer preferences.
Leverage Data-Led Insights and Optimization Models
Data is at the heart of supply chain transformation, telling retailers what consumers want and when. Through data analysis, retailers can make informed decisions, thereby elevating the efficiency of their supply chains.
Essential components of data science are simulation and optimization models, such as digital twins and dynamic simulations, or even emerging concepts like the metaverse. These models offer a systematic, data-driven approach to solving complex problems, optimizing operations, improving decision-making processes, and ultimately elevating both profitability and customer satisfaction. They enable the modeling of specific sites or entire global supply networks. This can empower retailers to navigate the challenges of a competitive industry while efficiently managing their resources and supply chain operations. The ability to model current state as well as various future state scenarios is especially important.
Manage Cost-To-Serve Down to the SKU
With customer experiences ever changing, retailers must now go beyond total sales or gross margins and analyze the end-to-end cost of every SKU. For instance, a specific item might initially appear to have an appealing gross margin. However, when considering costs encompassing inventory, handling, transportation, obsolescence, and shrinkage, the overall picture can change significantly. This approach enables retailers to make more informed decisions about product profitability and better align their offerings with customer demand.
Supply chain transformation has evolved beyond being a strategic choice; it has become a non-negotiable requirement for success in the retail industry. Retailers that embark on supply chain transformation are well-positioned to confront challenges and stay competitive in a rapidly changing marketplace. This positions them as forward-looking organizations prepared to thrive in the future.
Jeff Bornino is the North American president of TMX Transform
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