Managing a retail supply chain involves overseeing a complex web of logistical steps, from forecasting market demand and sourcing materials to controlling inventory and orchestrating the delivery of the right products in the right quantities at the right time. All of these processes must be streamlined if retailers are to successfully meet customer expectations while keeping their supply chains functioning as efficiently as possible.
Managing the supply chain has been especially challenging in recent years, due to rising materials costs, labor shortages, regularly occurring stockouts, expensive and unpredictable shipping conditions and constantly shifting consumer behavior. Efficiency and agility are the keys to maximizing supply chain success under these conditions. Conversely, delays and inflexibility can lead to higher operating costs, unhappy customers and a negative impact on a company’s bottom line. To help address the many supply chain challenges retailers face today, this guide provides tips on how to build, manage and optimize supply chain processes across the board.
What Is Retail Supply Chain Management?
Supply chain management involves overseeing the inbound and outbound logistics for every product a retailer sells, which includes all of these links in the chain, and more. Every process in the retail supply chain, from demand planning, sourcing materials and coordinating suppliers to tracking inventory, monitoring warehouse operations and manufacturing and delivering products, must be managed effectively for optimal supply chain performance.
The business objectives of a well-managed supply chain are twofold. First, a smoothly running supply chain helps retailers optimize their supply-side functions to cut costs and work in a more agile way. Second, an efficient supply chain allows businesses to deliver goods to customers more quickly, which gives the business a competitive advantage and helps build stronger customer relationships over time.
Consider a popular electronics retailer that has customers lining up to buy its new smartphones, tablets, laptops and other devices each year. This company’s reputation hinges heavily on its ability to deliver new products at scale, as well as its ability to innovate and bring new technologies to market. The company also needs to remain competitive on pricing, speed of delivery and other supply chain metrics to perform at a high level and stand out in a crowded market.
- Retail supply chain management helps retailers streamline their supply chain processes from start to finish, weeding out inefficiencies and providing better customer experiences.
- To optimize supply chain processes, businesses can benefit from gaining an integrated view of performance and system data across every link of the chain.
- Supply chain management software can help retailers remain flexible and address any challenges that may arise in tracking, moving, storing and delivering products to customers.
Retail Supply Chain Management Explained
The modern retail supply chain encompasses a variety of departments within an organization, from the sales teams that drive demand for the company’s products and the warehouse teams that store and move inventory quickly to the finance teams responsible for supplier invoicing and financial reporting. Inefficiencies, delays and financial challenges that occur at any point in the chain can have a ripple effect on other departments.
While many industries rely on supply chains, the retail supply chain can be especially challenging to manage. For one thing, retailers must rapidly source and deliver several products at once. What’s more, it is common for a retailer’s product lines to regularly change as customer demand evolves. For example, apparel brands must manufacture, sell, ship and clear inventory every few months to keep up with seasonal changes and runway trends.
A streamlined supply chain is especially important for retailers that sell perishable goods. Grocery stores, for instance, must keep their shelves stocked with fresh produce every day, while minimizing waste. This requires a delicate balance of supplier relationship management, inventory optimization and demand forecasting. In all cases, the aim of retail supply chain management is to maximize product output and customer satisfaction, while reducing supply chain costs and inefficiencies.
The Importance of Retail Supply Chain Management
Effective supply chain management is essential, as retailers look to increase their output and revenue while keeping their operating costs to a minimum. Not only does a well-managed supply chain result in higher profits, an agile and responsive strategy also helps retailers consistently predict and meet customer demand.
Retail habits after COVID-19 brought a step-change in consumption habits, and consumers have increasingly embraced online shopping, as well. As a result, many retail businesses around the world have been rethinking their logistical plans and adopting new digital strategies that allow for more flexible delivery options.
In the face of shifting consumer behavior, retailers must build a resilient supply chain, one that can both adapt to pandemics, economic shifts and other disruptions and evolve as new supply chain processes and management methodologies emerge. According to McKinsey, building long-term resilience into the supply chain can help businesses boost their sales by 3% to 7% and improve cash flow by 15%.
Specifically, supply chain management can help retailers improve their operations, drive revenue and position their businesses for long-term success by:
Determining Ideal Inventory Levels
Controlling inventory represents one of the highest costs for retailers. Businesses must be able to forecast market demand and maintain an optimal volume of inventory to meet that demand. Inventory analytics software can help retailers strike an ideal balance between production volumes and customer demand to avoid manufacturing an excess of products and subsequently overspending on storage. With visibility into inventory at every stage of the supply chain, retailers can understand any limitations that may occur, so they can prevent their supply chains from failing to meet customer expectations.
Reducing Costs Through Automation
Supply chain automation involves the use of software and machines to handle a wide range of supply chain activities. Warehouse automation is particularly popular among retailers, ranging from machines that handle large-scale warehouse data entry to optimizing routes and automating sorting and packing of customers’ orders. The aim of automation is to render supply chain processes more efficient and less prone to human error. Another benefit: In addition to saving time and money, robots also make the storage and preparation of inventory safer for warehouse workers.
The goal of a retail supply chain is to source, manufacture and deliver products to customers as quickly as possible, with minimal delays. Supply chain management helps to ensure that every process along the supply chain, from the sourcing of raw materials to the delivery of finished products, is executed at the ideal speed and volume, so that one step in the supply chain leads seamlessly to the next. Visibility across every link in the supply chain gives managers the big-picture view they need to eliminate inefficiencies and bottlenecks and make sure that every step in the process functions in an optimal way.
Allowing Retailers to Remain Agile
Agility is the key to building a resilient supply chain that can adapt as a retailer grows and its customers’ needs change. To accommodate shifting geopolitical conditions, an ever-changing supplier network and constant fluctuations in market demand, retailers need to plan for both the short and long term by embedding agility into their operations. According to Gartner, 96% of retailers plan to make their supply chains more agile. In short, agility is the difference-maker between short-term revenue gains and enduring relevance in the retail market.
Ensuring Consistency Across Product Lines
Retailers often sell several different products in a variety of locations. The ability to deliver a consistent and satisfying experience with every product a company offers — and to ensure that every purchase goes smoothly, whether the item is sold in a store or online — has become a differentiator for retail businesses. Market leaders understand that their supply chains must align with their customers’ preferences and that they must set retail-specific benchmarks across both their product lines and delivery channels, so customers remain consistently pleased with the results.
Retail Supply Chain Management Challenges
Businesses face a range of challenges that can disrupt their supply chain operations, drive up their inventory costs and, in the worst case, lead to missed targets and dissatisfied customers. From the intricacies of managing multiple vendors to opportunities for improving customer experiences, supply chain challenges include:
Managing Multiple Vendors
Retailers that source materials from multiple vendors face a major challenge in tracking, analyzing and managing these relationships. That goes double for retailers that work with overseas vendors, which adds layers of complexity in terms of adjusting to different languages, time zones and regulatory compliance rules. By applying the principles of supply chain management and the technologies required to implement them, retailers can centralize and manage their supplier relationships from one location, based on a single, accurate record of their data on everything from invoicing to performance metrics.
Optimizing Inventory Levels
Optimizing inventory is a constant struggle — and the stakes are high. Unused stock can incur astronomical inventory costs and take up valuable space in a retailer’s warehouse, while underestimating demand can lead to stockouts and missed sales opportunities, not to mention disappointed customers. The goal for retailers is to strike the right balance between what they can realistically deliver to customers and what the market wants. For instance, pet medicine retailer HealthyPets keeps enough inventory in its warehouse to deliver between one and three months’ worth of products, drawing on historical and current economic data to ensure that its forecasting is accurate and avoids waste.
Dealing With Global Shortages
Worldwide shortages can materialize in an instant. A workers’ strike at an overseas warehouse can put a fashion brand’s textile sourcing in jeopardy. A global pandemic can shut down the factory production of food and paper products overnight. Besides slowing down supply chain processes, global shortages can also drive up the cost of raw materials, forcing retailers to reconsider their vendor matrix. The ability to adjust quickly when faced with such events is essential, if retailers hope to continue operating as close to peak capacity as possible, while keeping their costs in check.
Managing Shipping Delays
Shipping delays can occur for multiple reasons, from bad weather to congestion in major shipping ports. As consumers increasingly order goods online and retailers rely on overseas vendors to stock their shelves and warehouses, shipping-port delays could continue to cause disruption for years to come. By selecting other shipping routes and choosing alternative vendors to help overcome short-term bottlenecks, supply chain management solutions enable retailers to respond to delays by allowing for split-second decisions to change the plan.
Reducing Costs and Time to Market
The desire to work faster, yet drive down costs, is universal for businesses. For retailers managing complex supply chains, effective supply chain management can deliver visibility across a retailer’s supply chain operations. This visibility can lead to better alignment among teams, greater agility to avoid delays and costly disruptions, and access to more of the data required to optimize inventory analytics. In addition to driving down costs, these efficiencies allow retailers to make on-time deliveries of the right products to the right place. In turn, happy customers, who receive what they ordered in a timely fashion, are less likely to take their business elsewhere.
Weathering Economic Sanctions
International powers may, at times, impose economic sanctions to manage diplomatic challenges. Retailers that source materials in a sanctioned nation often have no choice but to look elsewhere for needed materials. And, if the sanction occurs suddenly, businesses will need to find an alternative solution quickly, as every second of delay means fewer products manufactured and sold. Managing economic sanctions relies on agility and flexibility in supplier management, as well as having the right amount of inventory available to meet customer demand while making adjustments.
Improving Customer Experience
Retail customers expect to browse, buy, receive and return products easily, whether they shop in a store, on their phones or through social channels. These expectations touch every part of the supply chain, from procurement and inventory to delivery and reverse logistics, in the case of returns. Effective supply chain management is instrumental in meeting customers’ needs because it allows retailers to accurately forecast and meet demand and to make the constant adjustments required to keep their supply chains operating smoothly.
Strategies to Improve Retail Supply Chain Management
With so many moving pieces in a supply chain, it’s important for retailers to find ways to improve processes through effective management practices and technologies. Some strategies, like the use of robots to streamline warehouse operations, are tactical. Other initiatives, like the integration of data across business functions, provide strategic opportunities for retailers to gain visibility across the supply chain, so they can base their decision-making on a big-picture view of their processes.
To improve supply chain management, retailers can:
Automation software can help businesses complete supply chain–related tasks more efficiently. For instance, warehouse automation can be used to track and manage retail inventory. Automation allows retailers to track and record the movement of inventory, relieving employees from manual data entry and removing the associated risk of human error. In addition, robots may select, stock and move products in the warehouse, rather than leaving this labor-intensive task to warehouse employees.
Use Tracking and Forecasting Software
By tracking products through every step of the supply chain, retailers can gain a firsthand view of their supply chain functions. Taking this end-to-end view for every product manufactured, sold and delivered gives retailers a global understanding of where their supply chain is performing well and where improvements are required. Tracking products also gives retailers accurate, real-time data on inventory levels. Combined with performance data, this insight helps retail businesses accurately forecast demand and ensure that they have the production capacity to meet customers’ needs.
Integrate All of Your Systems
The retail supply chain has many interdependent parts. Changes to one process will likely have knock-on effects to the rest. By integrating the systems and data behind the many elements of a supply chain, retailers can gain an accurate view of production, warehouse functions, inventory, market forecasts and customer demand, in a central location, which improves efficiency. In turn, this intelligence allows teams to identify potential performance issues and join forces with other departments to quickly address any issues that may arise.
Adopt a Demand-Driven Supply Chain Model
A demand-driven supply chain model comes down to the use of demand management as a planning methodology. Retailers use this methodology to forecast and adjust to the market’s demand for their products, taking an outside-in approach to supply chain planning and strategy. Demand-driven models promote tighter coordination among supply chain operations, marketing and sales teams. Together, these teams can be sure their production and inventory schedules adapt to real-time market demand to capitalize on sales opportunities and minimize waste.
Improve Supply Chain Visibility
To optimize the supply chain, retailers first need to have a clear understanding of how each function is operating. Supply chain management software provides retailers with visibility into customer-demand data, plus inventory levels for every product, at every step of the supply chain journey. In this way, retailers can set benchmarks to track progress against clear metrics to improve their supply chain performance. For example, a do-it-yourself retailer might aim to cut delivery time for its orders by 10% through a mix of warehouse automation and last-mile delivery improvements. Visibility across these functions would allow the retailer to track its progress toward this goal.
Explore Multichannel Fulfillment Options
Customers expect speed, accuracy and convenience when making a purchase. In response, retailers are rethinking fulfillment processes to meet these expectations, while maintaining profits. Alternative fulfillment options, like curbside pickup and buy online, pick up in store (BOPIS), have grown in popularity. Retailers selling online are increasingly partnering with third-party logistics providers (3PLs) to fulfill ecommerce purchases and reach the scale required for quick local deliveries.
Optimize Delivery Routes
Shipping costs continue to rise, consuming a growing portion of a retailer’s overall supply chain budget. One way to drive down costs is to optimize delivery routes, drawing on historical delivery data to choose the transportation mix that will get products to customers on time, at the lowest possible cost to the business. Among retailers, there is also growing interest in local sourcing, which tends to reduce shipping costs and result in faster delivery for customers located within a specific geographical area.
Partner With a 3PL
Third-party logistics providers, or 3PLs, are businesses hired by retailers to fulfill or improve supply chain processes. 3PLs are commonly employed for fulfillment tasks and for coordinating last-mile delivery, but many retailers hire them to help with warehouse and inventory management. For example, retailers might use a 3PL to pack and ship online orders, to complement the retailer’s own brick-and-mortar operations.
Enhance Product Traceability
It takes more than stock counts to trace and manage retail inventory. In the interest of quality control and customer satisfaction, many retailers trace their products through barcodes and lot or serial numbers to ensure that items are consistent in terms of quality and are delivered on time. Consider a toy manufacturer that realizes one batch of beach balls was manufactured with a defect that causes them to deflate at high temperatures. Instead of recalling every beach ball it has ever sold, the business can simply recall the lot in question and, thus, replace fewer defective items efficiently.
Leverage Predictive Analytics
To effectively manage a supply chain, retailers need to make decisions that are based on accurate data about their businesses and the market. These analyses combine historical and current data — on supplier performance, inventory turnover, warehouse operations, fulfillment delays and more — to help retailers reveal and address any inefficiencies. The use of artificial intelligence (AI) and machine learning algorithms enhances predictive analytics, allowing retailers to quickly process and query enormous datasets from across their supply chain operations. According to a 2022 Gartner report, more than 50% of supply chain organizations will use machine learning to enhance their decision-making by 2026.
Unleash the Power of Your Supply Chain Now
Focus on Supplier Collaboration
The key to getting the most out of suppliers is to encourage cooperation and a joint vision of success. This makes overall supply chain performance every supplier’s primary goal. Retailers, like Philz Coffee, use inventory management software to give every supplier real-time visibility into their warehouse inventory and in-store stocks. This visibility gives suppliers the heads-up they might need to start preparing orders before stock levels run low, contributing to a seamless supply chain process.
Strengthen Security of Payments
The threat of cyberattacks on supply chain data continues to grow, as hackers use advanced ransomware and phishing tactics to infiltrate retailers’ IT systems. Further complicating matters is the unintentional exposure of supply chain data to cyberthreats by retail employees, many of whom use their own devices to access their company’s software systems. To prevent cyberthreats, retailers must be vigilant about tracking shipments, keeping a close eye on warehouse and inventory activities, committing to working only with certified suppliers and reputable 3PLs and ensuring that all data access is governed by robust access protocols. Businesses may also want to routinely train employees and supply chain partners on how to spot and report attacks before they spread.
The Future of the Retail Supply Chain
The only constant in the retail supply chain is change. The ability to understand and adapt quickly to change will be a major differentiator for retailers in the years to come. But that doesn’t mean retailers should focus only on short-term decision-making. Many retailers are now rethinking the way they build, organize and manage their supply chain networks at every level, so they can become agile enough to make changes quickly and with confidence.
Many businesses are also becoming more data-driven in their decision-making. End-to-end visibility across the processes that are part of retail planning, supply chains and customer experiences is the Holy Grail; it allows retailers to make cross-functional decisions that balance customer success with a focus on driving down operating costs on a more global scale.
To satisfy customer preferences, omnichannel purchasing journeys and fulfillment drive the need for a data-driven supply chain process. Real-time data on suppliers, inventory and delivery can be matched with more accurate demand forecasting across channels to help retailers expand these revenue streams and improve the efficiency of their functions on a daily basis.
Everything You Need in One Place, in Real Time: NetSuite
Managing a retail supply chain starts with having all the right data in one place. NetSuite Supply Chain Management allows retailers to centralize data from across their supply chain, ensuring that every team from procurement to logistics works with the same version of the truth. Visibility across the supply chain empowers retailers to match their demand planning to customer expectations and execute their supply chain strategy. By recording and updating production data, financial reports, inventory and customer orders in real time, NetSuite empowers retailers to build data-driven supply chains that are informed by up-to-the-minute intelligence.
In addition, NetSuite for Retail provides a single platform to help retailers manage everything from in-store point-of-sale (POS) systems and ecommerce experiences to customer relationship management (CRM), financial and inventory processes. NetSuite for Retail allows modern retailers to bring their omnichannel strategies to life, giving them greater control over supply chain performance, operating costs and customer experiences.
Supply chain management is critical for retailers that want to stay competitive in today’s world, especially as their customers embrace new purchasing channels and delivery models. With visibility across supplier networks and a wide range of accurate logistics data, retail businesses can develop the supply chain agility and resilience they need to thrive in the long term, turning complex challenges into opportunities for profit and growth.
Retail Supply Chain Management FAQs
How does customer experience fit into the retail supply chain?
The retail supply chain describes the suppliers, processes and technologies employed to manufacture retail goods, store products and ultimately deliver them to their destination. The final location may be a retail store, a drop-shipment point or directly to a customer’s home. In all cases, the customer is the end point of the retail supply chain, and the experience the customer receives — from the moment of purchase to delivery — is largely dictated by the speed and accuracy of a retailer’s supply chain.
How can businesses use data to improve their retail supply chain?
Every step of the retail supply chain generates valuable data that can be used to analyze and optimize supply chain processes. For instance, supplier performance data can help retailers choose the least expensive and most efficient vendors. Warehouse management data helps retailers optimize activities, like the receiving, picking and packaging of orders. Inventory management data helps businesses keep the optimal amount of product supplies on hand to meet customer demand.
How can businesses improve retail supply chain collaboration?
Collaboration among different players in the retail supply chain can be improved in two main ways. First, retailers can unify their teams around the same goal of maximizing output and profits, while keeping costs to a minimum. Second, they can unify data streams across teams, so every department from procurement and manufacturing to warehousing and transportation can rely on a single version of the truth and work together to address logistical challenges.
What is meant by retail supply chain management?
Retail supply chain management refers to the management of every step in the retail supply chain. More specifically, it refers to the processes of sourcing, manufacturing, storing, shipping and delivering retail products to customers, whether they shop online, in a store, on a mobile device or on some other channel.
What are the four components of retail supply chain management?
The four main components of a retail supply chain are integration, operations, purchasing and distribution. Integration refers to collaboration, data visibility and alignment among supply chain stakeholders. Operations refers to the daily supply chain processes that keep a retailer’s sourcing, warehousing and deliveries in motion. Purchasing refers to the buying of raw goods or equipment that retailers need to manufacture and, ultimately, sell their products. Distribution is the end point of the retail supply chain, or when customers receive their products.
What are the 5 supply chain management processes?
The five processes that make up supply chain management are demand planning, sourcing raw materials, manufacturing products, delivering goods and accepting customer returns. Each of those processes can be broken down further. For instance, product delivery requires retailers to choose their preferred distribution partners, shipment routes and delivery models to maximize profits, while meeting customer expectations.
What are the 7 principles of supply chain management?
The seven principles of supply chain management are:
- Adopt a demand-driven supply chain model, based on the needs of customers.
- Enhance product traceability and supply chain visibility to align demand-planning across the supply chain.
- Focus on supplier collaboration and integration of all systems.
- Leverage automation, tracking and forecasting software and predictive analytics to ensure that the right number of products are available at the right time.
- Diversify vendors and explore multichannel fulfillment options.
- Strengthen the security of payments.
- Optimize delivery routes.