Everything You Need to Know About Supply Chain Optimization in 2021
In 2015, Target’s foray into the international market came to an abrupt end. Target Canada laid off 17,000 workers, closed hundreds of stores, and shut down its business operations in Canada.
How did a company with an established corporate culture and a track record of successes – even in the middle of a global recession – fail so woefully? In summary, Target Canada’s bankruptcy was driven by severe supply chain problems. These issues ended up costing the company billions of dollars in losses and forced the retailer to retreat to its US-based operations.
Target Canada has become a cautionary tale and an example of how supply chain snafus can become very costly. This is why every retailer needs to optimize their supply chains for maximum efficiency, profits, and customer satisfaction.
However, this is not just limited to retailers alone. The global economy depends on well-oiled supply chains to run smoothly and efficiently. Unfortunately, the pandemic decimated the bulk of the world’s supply chain, basically crippling the economies of entire continents and nations, and limiting access to essential supplies like food, computing chips, and medicine.
This has forced continents, nations, industrial sectors, and businesses to pivot and seek more efficient ways to optimize their supply chains. In fact, President Biden recently signed an Executive Order to create a more secure supply chain for essential goods and prevent a repeat occurrence in the future.
But signing executive orders is just a part of the equation. Every retail brand felt the pinch of poorly-running supply chains at the height of Covid19. Retailers had to routinely postpone the delivery of non-essential items to customers.
And even the essential items still suffered significant shipping and delivery congestion, resulting in growing customer dissatisfaction with retail brands. Even though these issues are now largely resolved, the reality is they still exist - even if it’s to a lesser degree.
This is why forward-thinking retail brands are actively seeking ways to optimize their supply chains so they don’t suffer a similar fate in the future.
What Does Supply Chain Optimization (SCO) Look Like for Retail Brands?
2020 was a tough year for the retail industry. Several retail brands including GNC and J.C. Penney closed over 12,000 stores, marking the biggest number of store closures in retail history. Retailers that adapted, thrived, and even posted record revenues were those that switched to eCommerce and omnichannel strategies that were based on more efficient supply chains.
The pandemic revealed several major underlying issues in the supply chain industry. A McKinsey survey indicated that these problems were predominantly caused by supply base deficits, production and distribution footprint problems, and the use of inadequate digital technologies.
Successful retail brands that were able to survive and thrive, did so because they deployed dynamic and agile solutions that led to a more resilient supply chain. So what does an efficiently optimized supply chain in the retail sector look like?
The following are the necessary components of an agile retail supply chain:
- Supply chain ecosystem digitization by upgrading omnichannel capabilities
- Increased human capital deployment
- Fulfillment automation through the use of artificial intelligence and machine learning technologies
Companies like Apple who are able to boast of their “unbreakable” supply chain are able to do so because they leverage some or all of the components mentioned above in their supply chain systems. Although Apple too has had those claims thoroughly tested by the iPhone 12 release delays in 2020.
While Apple isn’t a retail company in the conventional sense, the reality is the tech firm has a solid handle on its supply chain, and retail companies can learn from their structure.
There are also a few retail brands that run a solid and highly optimized supply chain. Amazon as an eCommerce retail brand has become a major player in the retail-sphere because of its super-efficient supply chain. The company achieved this by investing billions of dollars in robotics, warehouse automation, and setting up its massive in-house logistics structure.
Walmart, has attained major successes in the traditional retail sector. It has achieved this through the implementation of cutting-edge supply chain technologies. Their use of unique efficiency pathways has made it an enviable leader in the retail space.
Although not all retailers have big budgets and infrastructures like Amazon and Walmart, many can adopt scaled-back solutions modeled after these off-mall and big-box retailers, which will enhance their supply chain processes and improve their efficiency as well. This way, customers would be able to still get their items in the shortest possible time.
So how can your retail brand revamp or streamline its supply chain processes so it runs like a well-oiled order fulfillment and customer satisfaction machine?
Key Steps to an Optimized Supply Chain
According to Statista, over 2.1 billion people are expected to shop online for products they need in 2021. Retailers who want a slice of that pie will need to set up a streamlined supply chain process that works smoothly and provides excellent customer experience.
Over 2.1 billion people are expected to shop online for products they need in 2021.
In fact, a Deloitte report shows that 79 percent of organizations with superior supply chain capabilities generate more revenue than those with weak or poorly optimized supply chains.
This is why retail brands should endeavor to achieve these goals. How can a retail brand attain supply chain efficiency? It has to focus on the following:
- Waste elimination
- Minimization of redundancy and errors
- Improving inventory and order visibility
- Operating cost reduction
- Consistent product quality and standard
Retail brands that intend to achieve all these would have to implement the five key steps that serve as the bedrock of a fully optimized supply chain. These include:
Retailers have to implement inventory control and order fulfillment. A proper plan is crucial for the fulfillment of these goals, which is why many retailers endeavor to take care of this from the get-go. Most retail brands handle this by using analytics to determine the aggregate demand for each item and the available supply.
Figuring this out early not only prevents supply chain lags and delivery delays but also helps retail operations run smoothly and efficiently. Most of the analysis involves predictions and demand speculations based on past order histories or seasonal demands.
Naturally, because of the complexities involved in the collection and analysis of the data, retail brands often have to depend on the use of Material Requirement Planning tools –usually found in enterprise ERP software and other AI-powered tools.
Proper planning also helps minimize instances of the Bullwhip Effect, where demand fluctuations on the retail end can produce larger fluctuations along the value chain –wholesaler, manufacturer, distribution centers or systems, and much more.
Sourcing and Making
Vendors are a vital part of the supply chain. These entities produce or manufacture the products and goods that a retailer requires. A glut in the supply side can lead to inventory shortages, canceled orders, and customer dissatisfaction. All supplied goods must adhere to stipulated quality and standards.
Grocery retailers who sell perishable food items will often require minimum supplier lead time that supports a minimal inventory strategy. Every retail brand has its supply needs. For instance, high-end engagement ring shortages during the summer or fall at a Tiffany store are a disaster.
Online grocers like FreshDirect, on the other hand, are wary about overstocking, so they’ll prefer to be out of lettuces or spinach by the end of the day than to have too many left over. For these fresh produce retailers, the occasional shortage is better than having excess stock. Understanding and setting up a reliable and efficient supply side is a crucial supply chain strategy.
Product Delivery and Easy Returns
All supply chains are incomplete without an effective and efficient delivery system that’s on-time, lowers costs, and encourages customers to buy more. Every item that comes through the supply chain pipeline to the customer must be of the highest quality, properly packed, and made available in the amount that the customer prefers.
There’s no point in fast delivery if the product is subpar. Retailers have to ensure that all products sold to customers meet their expectations. And if that’s not possible, provide an easy avenue to facilitate the return of those items and replace them with the best standard items quickly.
Supply Chain Best Practices
Businesses with optimal supply chains see a 15% decrease in supply chain costs, and record 300% cash-to-cash cycles, compared to others who don’t.
Studies have shown that businesses with optimal supply chains see a 15% decrease in supply chain costs, and record 300% cash-to-cash cycles, compared to others who don’t. Retailers who have a streamlined supply chain tend to adhere to some or all of the following supply chain principles:
- Adapt supply chain to customer's needs
- Customize logistics network
- Align demand planning across the supply chain
- Differentiate products close to the customer
- Outsource strategically
- Develop and integrate technologies that support and enhance speedy multi-level decision making
- Adopt both service and financial metrics
These pillars of supply chain optimization are the bedrock upon which efficient supply chain systems rest. Since supply chains are the lifeline of every eCommerce and retail brand, it is crucial to adopt best practices that are proven to optimize supply chains that meet your brand’s KPIs and run efficiently and seamlessly.
The best optimized supply chains have just one goal:
Get the customer what they want, when they want it, in the state they prefer, at a reasonable price.
Retailers like Best Buy, Amazon, and Target are able to do this by implementing globally-acknowledged best practices. Little wonder they’re considered the “darlings” of online retail shopping.
Retail brands looking to replicate similar results and transform their supply chain into high-performing systems can adopt the following proven best practices:
- Invest in ongoing supply chain optimization training programs for your employees.
- Use artificial intelligence technology to improve end-to-end efficiency across the supply chain. Use the tech to optimize and automate everything from inventory visibility to consumer demand to order picking and last-mile delivery.
- Build cross-channel and market-wide relationships with suppliers, stakeholders, and every entity that’s necessary on the sourcing side.
- Implement seamless BOPIS and curbside pickups using machine learning-based augmented reality tech like Ox. Ox’s AR tech can help improve picking and fulfillment accuracy and speed up the delivery process, without costing a small fortune.
- Implement relentless and rigorous quality control measures to eliminate counterfeit and substandard products from the inventory. While most retailers outline their product quality in the purchase agreement, demonstrated laxity in procurement procedures, inventory management, testing protocols, and much more has led to increased counterfeiting incidents in the supply chain. A rigorous quality control process ensures that the customer doesn’t take delivery of substandard or counterfeit products.
- Set up a 100 percent inventory accuracy process. Double and triple-check the data your resource planning or warehouse management system provides you. To eliminate all doubts, implement a cycle count program that’s designed to conduct frequent systematic physical inventory audits and assessments.
- Predict customer demands and needs. Thanks to artificial intelligence, machine learning, forecasting technology, and data availability, it’s easier to predict what your customers need, when they need it, and their purchase frequency. Use the tech to look at seasonal demand, market analysis, product history, competitive landscape and so much more to determine when to stock up on what products for your customers
Remember the ultimate goal of supply chain optimization is to help you drive costs down, and improve profit margins. Therefore, you must prioritize the following:
- Improve lead time management
- Enhance the relationship between your brand and the supplier
- Lower the cost per unit of your items by streamlining your operations
- Increase inventory accuracy
Every retailer dreams of a supply chain that works so smooth that customers get their orders on time, in the state that they want it, and at a cost that’s affordable to both the retailer and the customer. This all-round, win-win situation is possible only with the help of a highly optimized supply chain.
As a retail brand, your supply chain should give you a competitive edge over other brands. Ox’s augmented reality platform can help boost your supply chain’s efficiency and give your competitors a run for their money.
That, combined with its machine learning technology, Ox helps teach your warehouse automation technologies to keep up with increasing demands and order fulfillment requirements. Ox is for the retailer who wants to run a more efficient supply chain, keep their costs down, generate even more revenue, and take their operations to the next level.
Ox will help drive your supply chain’s optimization faster, leading to significant cost savings, efficient order management, improved performance analytics and can help you run a more effective retail/eCommerce business.