40% of retailer members of the National Retail Federation say they are experiencing supply chain disruptions due to the coronavirus, the NRF says. And an additional 26% expect to see disruptions.
As the pandemic grows, and then presumably eventually wanes, retailers need to be agile and able to quickly shift what product goes where, the timing of when products are shipped to them and also need immediate insight into where all their inventory is at any given moment, says Cyndi Lago, vice president of supply chain at Capgemini.
For example, mass merchants such as Meijer Inc. (No. 90 in the Digital Commerce 360 Top 1000), Walmart Inc. (No. 3) or Target (No. 16) need to prioritize stocking and shipping of toilet paper over suitcases right now. That isn’t always easy as many retailers build demand forecasting models and agreements with suppliers that aren’t agile enough to deal with sudden, drastic changes.
One thing retailers should be doing now to make their supply chains more flexible is using digital technologies to optimize operations across the entire supply chain. Such digital technologies enable connectivity, data management, insights and smart automation, Lago says.
Currently only about 15% of companies analyzed by Capgemeini have digitized their supply chains, although 60% of companies report they want to digitize them. A digital supply chain strategy often pays off. Companies that invest in digitizing their supply chain and procurement on average generate an 18% return on their investment within 12 months, according to Capgemini. Additionally, 47% of retailers say supply chain digitization is one of their top three organizational priorities.
A flexible supply chain will help retailers deal with coronavirus shopping trends
“As offshore manufactures come back up to full production and different areas of the country recover at different rates, the allocation of product across regions and categories will continue to be fluid and dynamic and has the potential to create shortages and overages,” says Joe Vernon, transformation and next-gen technologies leader at Capgemini. “[Companies] can then expect to spend more money on transportation and handling to redistribute the goods accordingly. This should compel more companies to digitize and improve visibility and move toward a responsive and more intelligent supply chain.”
For example, as the virus hits some areas, such as dense and cold New York City, harder and longer than regions, such as Florida where the forthcoming hot summer may slow the spread, retailers need to adjust their supply chains rapidly, Vernon says. Stores of all stripes will likely be closed longer in New York City so retailers should prioritize ecommerce fulfillment and stocking of essentials in ecommerce warehouses for areas like New York over other areas where the pandemic isn’t as severe, he says.
Vernon says he recently spoke with one of his clients who was getting 20 to 30 truckloads of goods coming in a day with the pandemic but was unable to see what product was on which trailer. “He wants to know ‘Where are my essential products?’ Retailers need to know exactly where their product is in their supply chain,” he says.
A digital supply chain strategy might, for example, track and trace products with RFID or other technologies so a merchant would know where all products are at all times. Other examples of a digital supply chain include smart sensors in containers to monitor product conditions, digital sales and operations planning platforms and digital inventory monitoring.
For example, digital operations and planning platforms might enable a retailer to swiftly allocate more merchandise to ecommerce fulfillment centers rather than stores and supply more product to regions such as California, New York City, Washington or Illinois where more people are shopping online because all non-essential stores are closed.
“Retailers need to know where items are in the supply chain and have systems flexible enough to move items quickly where they need to go,” Lago says.
The ecommerce surge may last
While ecommerce has been accounting for a growing portion of total retail sales, this latest ecommerce surge is unprecedented and could have a lasting impact, both experts say. Indeed, online’s share of total retail sales has steadily increased over the past several years—with ecommerce penetration hitting 16.0% in 2019, according to a Digital Commerce 360 analysis of the Commerce Department’s year-end retail data. That was up from 14.4% in 2018 and 13.2% in 2017.
However, ecommerce spending is up more than 40% year-over-year since President Trump declared a state of national emergency on March 13, according to an analysis of spending trends at 850 retail sites by digital marketing vendor Listrak. And for some categories, the growth rate is much higher. For example, as stuck-at-home shoppers stock up online for products they need for everyday living, online revenue increased 124% year over year on March 24 for retailers selling household essentials, according to an analysis by digital marketing agency Within of its ecommerce clients.
“The strategic question for grocers and other retailers is, how much of this current shift to online ordering and home delivery or store pickup will be permanent? And based on that guess, how do they modify their supply chain to respond to the new model?” Vernon says. A consumer who has a great experience getting groceries delivered online during the pandemic might deem the $5 delivery fee worth it for the long term, especially if he has access to the many digital coupons online grocers offer.
A digital and agile supply chain can help retailers quickly respond to this swiftly changing ecommerce landscape, both analysts say.
Many of the coronavirus challenges retailers face are supply chain-related. According to a Digital Commerce 360 survey of 304 retailers in mid-March, supply chain communication topped the list (48%) of actions they’re taking as a result of the coronavirus. Others are contingency planning (34%), hoping to minimize disruptions (32%), monitoring the coronavirus situation in China (23%) and working with their partners to mitigate supply chain risks (22%).
Additionally, 44% of those surveyed expect production delays and 40% believe there will be inventory shortages throughout the year.