Why it matters:
- Supply chain challenges have become critical during the pandemic, and retailers and brands are seeking ways to prepare for future disruptions.
- Now is a good time for businesses to examine ways to diversify their sourcing and rethink their technology capabilities to minimize future supply chain shortfalls.
- Inventory allocations should be optimized for efficiency, including the deployment of safety stock — extra product stored in a warehouse to prevent out-of-stock scenarios — so that companies can respond quickly to disruptions.
The supply chain challenges that have plagued brands and retailers for the last two years are expected to linger well into 2022, according to companies that provide inventory management solutions for major brands and retailers.
Companies that need to move their products from overseas to the U.S., and within the U.S. from ports and factories to warehouses and stores, could be examining new supply chain logistics strategies that will help them navigate the challenging environment.
The following are strategies for solving supply chain challenges from Blue Yonder, Relex Solutions and United National Consumer Suppliers, inventory solutions providers for brands ranging from CVS and Petco to Sephora and Bed Bath & Beyond.
Diversify global sourcing and tap U.S. suppliers
Brett Rose, founder and CEO of United National Consumer Suppliers, which counts Macy's, Ross Stores and TJX Cos. among the retailers it supplies, said he believes one of the lasting positive impacts of the current supply chain struggles could be an increased focus on supplier diversification, including a fresh consideration of moving some overseas production to the U.S.
“I think diversification is really key right now,” he said. “It’s an-age old business practice: Don't have all your eggs in one basket, or in this case, don't have all your eggs in one region.”
Diversification could involve expanding sourcing from China to India or Indonesia, for example, or vise-versa, he explained. In addition, he said, “it’s a phenomenal time” to explore options for sourcing within the U.S.
“In the past, the U.S. may not have had the competitive edge because of labor costs, but freight and logistics expenses are outweighing that now,” he said.
In addition, he said, “it’s a phenomenal time” to explore options for sourcing within the U.S. “In the past, the U.S. may not have had the competitive edge because of labor costs, but freight and logistics expenses are outweighing that now,” he said.
Use artificial intelligence to gain an accurate, long-range view of product demand
Greg Wilson, vice president of sales and field strategy at Relex Solutions, which works with major brands and retailers such as Sephora, Dollar Tree, and Bed, Bath & Beyond, said he believes artificial intelligence and machine learning will enable retailers and brands to refine their product demand forecasting and inventory management and optimize their supply chains to a much greater degree.
Having an accurate, long-range view of product demand via AI-enabled data insights, combined with a tight relationship with suppliers, gives companies an advantage if resources become scarce or difficult to procure, he explained.
In addition, advanced analytics used in inventory management and demand forecasting now have the capability to incorporate much more information into their calculations. Companies can use artificial intelligence and machine learning to predict possible scenarios when situations such as the pandemic occur, for example.
These tools can provide a more holistic view of a company’s supply chain to predict not only their inventory needs, but also the most efficient ways to deploy that inventory, Wilson explained. For example, retailers might have space constraints in certain warehouses or stores, or might need to configure truckloads differently to be more efficient or sustainable.
Analytics can also help brands and retailers optimize their safety stock, which has become a more important concern in the last two years. Technology can help companies determine how to allocate that emergency supply — in warehouses, stores, or direct-fulfillment centers, for example.
“An integrated solution can look across all of those and tell you what's the most economical way to carry enough safety stock,” said Wilson.
Contract entire cargo ships versus sharing freight with multiple brands
Chirag Modi, corporate vice president, industry strategy and supply chain execution at Blue Yonder, which provides supply chain solutions for companies including CVS and Petco, said after the problems that importers have faced bringing products in from overseas during the last two years, some large brands and retailers could explore the possibility of contracting entire container ships for their own use rather than relying on ships that are bringing in containers from multiple brands.
It’s a tactic that several large retailers, including Walmart, Costco and IKEA employed to get around the port congestion ahead of the 2021 holiday season. By contacting their own cargo ships for some holiday merchandise, the retailers were able to unload at less-congested ports and had more flexibility to use containers of non-standard sizes.
Companies such as those and other retailers could be exploring the benefits of such a strategy to gain more control over their imports, at least for some items, Modi suggested.
While contracting an entire shipload is likely cost prohibitive for many small businesses, it could be reserved for use during the make-or-break holiday selling season, for example, when retailers generate a disproportionate percent of their annual sales. It also offers retailers the potential benefit of shortening the lead time for imports, which reduces trip costs by minimizing inventory holding times in U.S. warehouses, said Modi.
“If I have already seen the benefit, why wouldn't I do it again?” he said. “I may not do it in desperation, but I will do it very methodically and surgically.”
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