Many distributors and retailers made major moves to keep products and money flowing over the past 18 to 24 months. But for some, a funny thing is happening on the way back to “normal.” Leaders are finding that some new practices are worth keeping.
An ongoing theme is that fortune favors those who accelerate change. For example, Robert Khachatryan, founder of international logistics and transportation company Freight Right Global Logistics, says his customers shipped their holiday inventory much earlier in the year — in May and June versus August and September. No surprise there. But Khachatryan expects holiday product shipping to begin even earlier in 2022, with that volume stacked on top of regular freight movement.
By adding capacity versus scaling back, Freight Right picked up business rivals couldn’t handle, and Khachatryan is investing to keep that revenue going forward. For retailers, the aha here is to consider what it will take to execute 2022 holiday strategies in early Q2 or even late Q1.
Michael Healey, CEO of multichannel sales consultancy Yeoman Technology Group, says the key to success is a range of contingency plans that can be launched quickly in response to supply chain constraints and buying patterns as they emerge.
Other steps companies took range from continuing to diversify suppliers to thinking differently about their workforces. Some tactics likely to stick around:
“Single sourcing is no longer an option,” says Anthony Nuzio, CEO and founder of ICC Logistics Services, a consultancy that helps eliminate inefficiencies in companies’ transportation and logistics processes. That doesn’t just mean seeking out and qualifying alternate suppliers now to ensure you have options, though that’s a big part of his advice. Retailers can also no longer single source their shippers, 3PLs or any other partner that contributes to success.
Nuzio advises retailers to create a supply chain control tower reporting network that provides real-time information on each step from sourcing to customer.
“This includes all procurement operations, a full view of all suppliers' current and proposed operations, full access to all logistics service providers and 3PL data, as well as access to all financial data," he says.
Control towers are very common with manufacturers and supply chain consultancies. For retailers, which are now getting in on the action, tracked metrics will vary, but there are four components core to every type of business:
Full visibility: Before moving ahead with a control tower system, list the partners, metrics and milestones you need to track. Then ensure the system can cover all those bases. Commonly, this means being extensible and able to pull data from both internal systems, including ERP and CRM, and third-party providers, like 3PLs or shippers.
Automation: The system should immediately and without human intervention push alerts to the right people when set thresholds are crossed, exceptions arise or milestones are missed.
Ties into business systems: Once the tower alerts that, for example, a shipment of holiday items will be delayed, you need to calculate the likely financial cost of discounting the items to make up for a shorter selling period.
Predictive ability: These capabilities may not be 100% developed now, but have a roadmap for how the system will identify risks and perform analytics to predict how, say, a delay in a shipment could adversely affect customer satisfaction.
Look for a control tower system that can simulate inventory supply and demand across your supply chain and outlets and is geared to help retailers plan purchasing and production, access a running balance of inventory based on demand and better report on orders and shipments down to individual item levels.
A strong control tower system “enables collaboration across all participants involved in the supply chain to provide analytics for advanced problem solving and optimization,” says Nuzio. It will also cast a light on suppliers that consistently have delays and stockouts so leaders can consider alternatives.
With on-demand manufacturing, goods — whether a bespoke suit, swimming goggles shaped for your face or 3D-printed dentures— are produced only when and in the quantities required to fill an actual order. There are no piles of stock sitting on a shelf or in a warehouse.
“Companies are thinking, ‘If I could put this within proximity of a cluster of customers, I save on shipping, logistics, distribution and other supply chain costs and avoid potential disruptions,’” says Tony Uphoff, president and CEO at Thomas, a publishing company focused on manufacturing.
Clothiers such as Alton Lane and Ministry of Supply, apparel brands that make bespoke suits, achieve these benefits while also minimizing returns, because items are made to a customer’s exact specifications. Ministry of Supply co-founder and president Gihan Amarasiriwardena says his company buys deep on those raw materials that have maximum use potential. Besides circumventing long wait times in the current supply chain, the company avoids creating massive waste in backstock.
We’re also seeing additive manufacturing technologies going mainstream. In 2017, McLaren Racing Limited started using 3D printing to create more than 50 parts for its race cars. Today, additive manufacturing is everywhere, from healthcare to consumer goods, like ultra-fashionable and durable 3D-printed eyewear(opens in new tab). “Shark Tank” Season 5 saw a “feeding frenzy” over The Magic5(opens in new tab), a company that scans customers’ faces and prints custom goggles for $55.
When retail locations shut down, companies like Alton Lane and The Magic5 that could take orders online, had the stock needed to fill orders quickly and produced personalized goods (read: unlikely to be returned, able to support a premium price) were in a strong position. The recent reaction to The Magic5’s pitch — a cool $1 million for 6.5% equity — says the smart money sees this as a winning formula going forward.
Like single sourcing, setting annual budgets and hoping to stay within those parameters is no longer viable, says Nuzio.
“We recommend quarterly budgets that have a reasonable amount of ‘wiggle room’ in them,” he says. “To get [that flexibility,] supply chain leaders must report directly to the C-suite, because their decisions affect fundamental operations and profitability.”
He regularly sees retail companies that benchmark only against themselves and advises working with a partner to gather more data to inform supply chain and logistics — not just financial — operations. For example, supply chain and logistics partners and consultancies track pricing and other metrics from multiple competitive sources, since they work with a large cross-section of industries and shippers, and can provide not only expanded data but also insights that can help with negotiations.
“Consultants can advise if the rates are competitive or if there's a better deal to be had,” Nuzio says. More data may result in savings, which retailers can certainly use right now. In October, the median cost of shipping a standard rectangular metal container from China to the U.S. west coast hit $20,586 — almost twice what it cost in July and four times the cost in January, according to the Freightos FBA Shipping Cost Index(opens in new tab).
“It’s a perfect storm affecting raw material suppliers, manufacturing, shipping capacity and wreaking havoc with freight budgets and ultimately corporate profitability,” says Nuzio.
Even when shipping costs normalize, cost and sales histories will be poor predictors to use when creating budget forecasts. Retailers are now rethinking data inputs and using more sophisticated forecasting methods(opens in new tab), such as a moving average — calculating average performance around a given metric in shorter time frames — while frequently updating operating budgets, including cost of goods sold. More dynamic forecasts that bring in outside data is a trend that will continue to pay off.
Accenture’s ongoing consumer habits survey(opens in new tab) shows customers are striving to shop locally, mindfully and cost-consciously: Fifty-six percent are shopping in neighborhood stores or buying more locally sourced products, with 79% and 84%, respectively, planning to continue with this behavior long-term.
Meanwhile, shoppers accustomed to healthy discounts are finding fewer sales and percent-off codes right about now. Free shipping offers may require a higher minimum purchase than last year.
Part of the driver for many companies to limit discounts, according to a PYMNTS.com survey(opens in new tab), is fraud and opportunism, which the report found cost retailers in the United States more than $89 billion annually. Promotions are more expensive than planned when customers misuse codes, repeatedly sign up for free trials or stack scanned physical coupons to create extreme discounts.
This sort of activity is difficult to prevent without negatively affecting customers seeking legitimate savings, so many retailers now choose to simply limit discounts versus raising prices. Large retailers like Walmart were already starting down this “always low prices” path, while Apple, Chanel and Peloton and other upscale brands almost never discount(opens in new tab).
Sticking with the practice can be a winning strategy for midrange retailers as well.
A best practice when either increasing prices or eliminating markdowns is simply reminding customers about your value proposition or “sweetening the pill” by accompanying price increases with a service benefit or additional low-cost product feature. That, in turn, creates opportunities for increased customer retention, according to Frank V. Cespedes, a consultant and senior lecturer at Harvard Business School.
Large, national retailers can get in on this by adding localization and personalization based on their data. In June 2020, for example, in the midst of protests, pandemic shutdowns and lower profits, Nike announced audacious plans to open 200 small-format stores(opens in new tab) in North America, Europe, the Middle East and Africa. Known as Nike Live, these stores focus on providing value to individual customers by stocking items tailored toward their interests and needs and reflecting the local surroundings.
Ira Wolfe, president at HR consultancy Success Performance Solutions, says COVID exposed the fragility of human resources best practices, including in retail and other customer-facing industries. The current extraordinary number of job openings (demand) and low labor participation rates (supply) are just the tip of the iceberg.
“The pandemic just catapulted baby boomers into retirement and women into extended leaves and transitions, as well as laid bare glaring skills gap deficits,” says Wolfe. “While HR is not typically associated with the supply chain, that has been a mistake.”
Wolfe cites how shortages of labor, much of it due to COVID, cascaded.
“Semiconductor shortages, which led to most automotive manufacturers slowing down or shutting down production; shortages of truck drivers slowing and shutting down distribution centers; shortages of child care workers slowing down service, delivery and production,” he says. “The list goes on and on.”
Wolfe advises focusing on empathy, employee well-being, more flexibility, improved recruitment and hiring processes and fairer and more transparent compensation. Investing in talent to build needed skills rather than waiting for the perfect candidate to show up is a transition from thinking of labor as a commodity.
Leaders who choose options like these will be in good company: “Adding/improving in-house training” is the No. 1 way executives are dealing with the talent shortage, according to our recent survey. And, it’s one of the top tactics that workers think their leaders should take.
Old HR ROI strategy: Waiting on a unicorn with a four-year degree and ultra-targeted retail experience. New plan: Training functional humans to be great employees.
Investing in people development might just be the most lasting and valuable change that retailers take away from the pandemic.