Retail’s supply chain is broken and needs to evolve

Retail’s supply chain is broken and needs to evolve

The Covid-19 global pandemic has forced retailers in the UAE to stretch their supply chains and logistics in unprecedented ways. Whilst supplies of grocery and essential commodities have been coming into the country without a hitch to date, the main problem has been trying to get the product to consumers at a time when there is a limited and heavily controlled movement of people and workers.

As non-essential workers stay home in the eye of this storm, there are a handful of retail success stories to point to. For those providing food and household essentials, current trading is unprecedented, and related companies are working all hours to meet demand.

Marketing pleasantries have somewhat gone out the window with minimal communications (beyond generic Covid-19 safety emails) provided in thanking you for the order or updating you when delivery time is bound to be missed. That’s somewhat understandable, and there is a genuine appreciation that getting the ordered product at some point is the main thing during this period.

However, for mall-based retailers and apparel retailers, Covid-19 has spelt disaster. Nowhere illustrates the impact better than at lifestyle apparel retailer Primark.

Servicing the US and European markets, Primark has notoriously resisted the urge to go online with its products. And as economies in Europe and the US effectively shut due to coronavirus lockdowns, Primark has had no way of reaching its youthful customers. If people can’t leave their houses, they can’t get to its stores. Primark has now shut all of its stores worldwide, and it is down 2.8 billion dirhams per month in lost revenues.

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That’s not to say it’s been a paradise for online players. Even in a developed market, pioneering UK online grocery company Ocado had to close its website to new shoppers as it found itself unable to cope with a surge in new demand for its services.

Ocado has found that its machine – as innovative as they come – is almost too rigid, highly customised to work in a certain way, based on predicted demand forecasting models. It is simply could not deal with the spike, scale and random nature of customer behaviour and their ordering patterns during this epidemic.

Looking under the surface of retail, it is becoming more apparent that this pandemic has exposed severe cracks in retailing supply chains that need to be addressed.

The only organisations who will survive relatively unscathed are those who have the agility to respond to disruption like COVID-19 quickly, whether it is changing demand forecasting models, having visibility into their supplier base or only how to pivot for optimal fulfilment.

This will have allowed them to immediately respond to ensure a successful transition into a “new normal.” Unfortunately, given that franchise operations is the typical modus operandi for apparel retailers in the GCC region, very few have the capabilities, let alone the ability to use them to any effect.

Typically, for mall-based (or offline) apparel retailer, sales activity is planned 12-18 months, based on historical data and traditional forecasting models.

Merchandise selection and order quantities are shared with suppliers, and business planning moves forward accordingly. Forecasts are then monitored and updated, ten weeks out, six weeks out and then four weeks out, and two weeks out.

Variances such as European factory summer shutdown months are factored in, but for the most part, it is a well-oiled machine. What the local operator receives, they take, store, distribute and merchandise the store with. What they have, they hold and must sell, and they may not be able to return to the supplier.

Back to the UAE and for malls and mall-based retailers (without an online presence), the Spring selling season is lost, and probably a third-to-half of summer also. Lengthy product development and production calendars will likely impact Autumn/Winter 2020, if not beyond. The stock the apparel retailers have, is hard to shift, albeit many are scrambling to do so through their online platforms, through third parties like Noon or internal employee and network sales at a considerable discount.

But does it have to be this way? Organisations are currently in reaction mode, focused strictly on maintaining supply and meeting customer needs, often through hands-on rigour and hard work.

Tenacious supply chain professionals are and will continue working through immediate challenges. Moving forward, how can organisations better manage, foresee, and limit the severity of disruptions?

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Supply chain professionals have been talking about a need for more synchronisation and automation for a long time. As businesses look at what’s happening now, they are realising how important smarter supply chains are to their overall growth and continuity. If they emerge from the current period unscathed, they need to see it as a massive opportunity to better understand and respond to new demands, and then to act on that need to avoid this happening again down the line.

This will involve building the capabilities necessary to respond to future events with both pace and certainty. At the same time, there’s been a heightened premium on accelerating or driving greater agility into supply chains to manage rapidly better-evolving situations.

As we enter the “new normal”, we will likely see an acceleration of investment in hyper-automation and digitisation to help organisations be more nimble and proactive instead of reactive.

Right now, to help those who don’t have these capabilities, organisations like IBM are offering a number of tools to help get supply chains up and running in the immediate term.

However, as we move through this transitional phase, businesses will likely move away from legacy models. The good news is that they can emerge from this better and stronger by adopting next-generation technology like Artificial Intelligence (AI) and data visualisation to regain control of their supply chains.

Legacy system upgrades should be leveraged as an opportunity to transform processes to be more efficient and innovative thanks to these technologies. Protecting people is also an area to be addressed.

The workers keeping things running right now cannot continue at this pace. Technologies like AI and robotic process automation should do more of the hard work, freeing up time for people to think about what the future looks like so that supply chains can operate more strategically.

Understanding what customers need now, and what they will need in the immediate future, is critical to ramping up supply chains to meet those needs. It is all about sensing and responding to that new demand. Organisations will have a higher focus on risk management.

It will be hard to forget the recent pain, and in doing so [they] will look to balance their supply base, whether global or local, to provide the necessary agility and meet their customer needs.

The learnings from Coivd-19 for retailers are clear. Their supply chains need to be made more dynamic, responsive and interconnected to the ecosystem and processes. One of the most resilient courses of all may be teaming up with supply chain partners to establish a coordinated crisis-support system.

In such situations, partners will likely rise or fall together, and sharing information, ideas, and response strategies in that climate become highly valuable. In and beyond this global crisis, the right solutions will help them navigate uncertainty, adapt to changing conditions and become more resilient going forward.

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