Retailers have been moving quickly to adapt to the coronavirus pandemic — with more than 65% experiencing or expecting supply-chain disruptions due to production halts in China, according to the National Retail Federation.
After this year's unprecedented drop in consumer activity, the next challenge for most retailers will be adapting their supply-chain engines when the world begins to reopen.
Retailers should expect that conditions will be much different as we enter the world of a “new normal.” Restarting business will be a challenge, and companies that are focused on minimizing immediate impacts should keep in mind that this disruption will alter buying habits over the mid to long term.
As disruption hits the supply chain, retailers need to quickly shift to where products are going, as well as where inventory is at any point in time. Developing a flexible and transparent supply chain for both current and future demand will be a key to success.
Yet according to a Capgemini research report, only 15% of companies have digitized their supply chains, with 60% saying they want to move in that direction. While that was a top-three priority for about half of retailers, 86% said they were struggling to get projects beyond the testing stage, exposing a gap between expectations and what’s being achieved.
After months of shutdown, companies will need a better grasp of how they make choices about inventory. Agility and flexibility will be essential. For example, a digital supply-chain strategy that tracks and traces products with radio frequency identification or other technologies can allow a retailer to know where certain products are in the chain. Smart sensors in containers can monitor product conditions, and digital platforms for sales and operations planning and inventory monitoring can create a more connected supply chain.
One retail client is reviewing every part of its supply chain to assess what needs to be done. It’s asking about allocations, demand plans, and orders in the system, and has assembled a checklist to ensure that the process is communicated across the supply chain.
When the pandemic ebbs, there will be a surge of activity, and companies will need to know what inventory they have and where it’s located, so that they can be ready when demand for goods goes back up.
Recovery won’t be uniform. Offshore manufacturers will take time to reach full production, and different areas of the country will recover at different rates. The amount of product needed will vary, and categories will continue to be in flux. Moving the right products to areas with highest demand will result in higher transportation and handling costs, but having a more intelligent supply chain will mean better response and flexibility in such situations.
The new supply-chain model needs to be flexible and data-centric. By leveraging internal and external data to detect early warning signals, issues, or anomalies, a company can be better prepared for disruptions. And the benefits extend beyond flexibility. Capgemini found that companies digitizing their supply-chain and procurement activities generate an average 18% return on investment within 12 months.
It’s important to build these concepts into your supply-chain roadmap today, and fine-tune the model as needed in the future. That might mean stretching beyond current thinking. For example, companies might need to adopt a central-stores model that shares inventory, or new fleet strategies where there is more ownership or logistics required. It could even mean crowdsourcing or collaborating with a different company to share logistics.
Data and analytics will help prioritize inventory and logistics when the taps are turned back on. Much like seasonal merchandise, demand will be high initially, then taper off. This will not be consistent in all areas, meaning that some allocations might need to be shut off while reviewing inbound inventory, and redirecting merchandise accordingly.
Getting clean data in order to react quickly is essential to moving forward. It will mean more supply-chain digitization and changing business processes, with all partners in the supply chain collaborating and sharing data across the network. The new digital supply chain will need to be flexible and transparent, and include all partners. For instance, retailers will look for more local suppliers, and this kind of change could mean greater flexibility in managing demand.
Now is the time to understand the implications of the disruption, and be ready for what comes next. Strategies put into place today will set up the right conditions when supply chains restarts. Retailers should prepare for the next wave of disruption before it even begins.
Cyndi Lago is vice president of supply chain at Capgemini Invent.
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