Rethinking retail supply chain management and planning
On the heels of a year, and a holiday shopping season, like no other, all of us – retailers, suppliers, employees and consumers – are eager to turn the page. The big question on everyone’s minds is this: When can we “go back to normal?”
But perhaps there is no “going back,” at least not completely. Rather than viewing 2020 as an outlier, retailers and supply chain managers should be considering what the past year can teach them about how to transform their operations to become more agile and resilient in the months and years to come.
Just before the 2020 holiday season kicked off, I wrote an article for Supply & Demand Chain Executive about fundamental practices retailers needed to adopt to weather such an unprecedented moment. The main point I wanted to make: 2020 shouldn’t be viewed as “just a blip,” but rather a wake-up call that prompts retailers to re-think how they manage their supply chains all year round, every day.
Now that we’ve rung in a (hopefully better and brighter) New Year, I sat down with our communications department to discuss the lessons that retailers and supply chain managers should be taking away from one of the most challenging seasons in holiday shopping history.
In the Supply & Demand Chain Executive column, you wrote that, because of the pandemic, retailers should assume that fulfillment had forever changed. What are some of the trends you saw in 2020 that look like they are here to stay?
As I mentioned in the column, we all know that, at a minimum, some norms are likely gone forever. According to the latest data from McKinsey, consumers have adopted new purchasing behaviors and have moved much of their purchasing to online channels, possibly for good. The report notes, “Shock to loyalty remains, with more than 77 percent of Americans trying new shopping behaviors during the crisis… including new methods, brands, and places.”
The whole world has reset, in a way. Many supply chains have been set up largely on the store replenishment side, and these types of retailers had to pivot over the holiday shopping season to e-commerce – some more successfully than others.
Going forward, supply chain, HR and operations need to analyze staffing in light of the ongoing changes on the fulfillment side, especially related to the costs involved in fulfilling orders either through distribution centers or buy-online-pickup-in-store (BOPIS) service.
How can retailers get more agile when it comes to inventory and allocation policies?
Move to more dynamic inventory allocation. Rather than deciding on allocation to a specific distribution center when orders are placed, more and more retailers are waiting until products reach the US so that they can transload/cross-dock to whatever center will best serve current demand. This gives more flexibility when it comes to making cost-effective fulfillment decisions, which can then be based on indicators that are closer to real-time.
What do you mean by “pivoting to a more driver- and scenario-based model of demand”?
Demand planning systems are driven by a range of underlying assumptions, but 2020 definitely dropped a bomb on our ability to use static parameters to make useful decisions. We’ve learned that even recent history can be very unreliable, so companies must first put in place governance processes to continually review and update the engines that drive most inventory and replenishment decisions. Pivoting to more driver- and scenario-based demand is key.
So, what do we mean by that?
- Driver- and scenario-based demand means looking at a range of different possible outcomes on the demand side, while also factoring in things like scarcity and, considering what happened with package delays over the holidays, even the availability of logistics channels.
- Planning cycles need to review demand daily – monthly or weekly reviews are not enough, especially when there are still so many unknowns about how any recovery in 2021 might unfold.
- This is also the time to focus on collaboration, consensus demand planning, and really understanding why decisions are being made. AI and machine learning are great tools, and can be used as inputs to the process. But because we are still in a novel situation, algorithms need to be balanced with input from market intelligence, pricing & promotions, and other external drivers of demand.
What should retailers do to ensure that supply chain leaders have a seat at the table when it comes to big, transformative company initiatives?
Supply chain leaders should be on the executive management team and they should be collaborating on a regular basis with stakeholders from finance, HR, sales and marketing. It’s too important of a role to be separate from these other functions, so elevating this role is absolutely critical.
For a deeper dive into strategies and tactics related to building resilience into your supply chain, check out this recent Digital CPX 2020 session on Intelligent Demand Management.