The right technology is critical for overcoming ongoing supply chain disruption.
That was one of the observations by Ken Morris managing partner, Cambridge Retail Advisors, who spoke with Chain Store Age about the causes of disruption in the global supply chain, how it will impact the upcoming holiday season — and what retailers can do to counteract its effects.
“This is an amazing situation,” said Morris. “It’s not just COVID-19, but a host of other factors breaking up the supply chain.”
In addition to widescale consumer hoarding of certain household products at the outset of the pandemic in spring 2020, Morris cited the popularity of the just-in-time delivery model as exacerbating supply chain problems.
“The just-in-time delivery model was disrupted by hoarding,” explained Morris. “You can’t match surging demand, so you have to bring on factories which are at limited capacity to produce just enough product. It can take a year to bring a factory online. There is a massive bubble caused by lumpy demand. You can’t just set up another factory to produce toilet paper.”
Morris also discussed the impact of government stimulus payments and the March 2021 Suez Canal blockage on the retail supply chain.
“People are stuck at home and then the government gives them money,” said Morris. “The situation becomes, ‘I have extra money and I can’t leave home, so I buy stuff.’ Retailers can’t keep up with the increased consumption
Also, 369 ships got caught in the Suez Canal, said Morris. “Large numbers of product got hung up in factories in China. Then when they began opening the canal back up, they brought in ships in with people from different countries all together on board. If one of them has COVID-19, the ship must quarantine for 15 days, which adds 15 days of goods just sitting there on the ocean. Ships are backed up 50 deep off the port of Long Beach and 25 deep off East Coast ports.”
[Read more: Report: Retailers working on mitigation strategies amid Suez Canal blockage]
Even once ships are able to enter the U.S., Morris said a shortage of truck drivers, caused in part by people reluctant to get involved in a profession they see as becoming automated means products can’t leave port once they are unloaded. Other issues include an ongoing trade imbalance with China and the quadrupling of the average daily rate for renting a container from $4,000 per day to $16,000 per day.
“Also, fuel costs are up 50%, and there is a railcar shortage, and even a pallet shortage caused by an increase in wood prices,” said Morris. “You’re in trouble this holiday season if you don’t already have your products – they won’t come in on time.”
Despite these myriad supply chain issues, Morris does see things beginning to return to a “semi-normal” state by the end of the second quarter of 2022. He also had advice on technology and strategy steps retailers can start taking now to mitigate supply chain disruption.
“RFID technology gives you a real-time view of your inventory,” Morris stated. “Leveraging RFID, you can understand where inventory is, know exactly what’s in the store, and get rid of safety stock. Investing in RFID technology right now would be a really smart move. The price is so cheap, and the cost of labor is so high, the use case has become feasible.”
Morris also recommends that retailers consider “nearshore” options for sourcing products that make them less dependent on China, and invest in advanced transportation management solutions.
“You can go back through the supply chain and understand where everything is in real time,” he said. “You can change a shipment from a boat to a plane, identify bottlenecks, and react in real time with notifications by phone, text or email.”
Finally, Morris suggested that retailers seek out analytical solutions that will support the four traditional stages of business analytics –descriptive, diagnostic, predictive, and prescriptive.
“Descriptive is what happened, diagnostic is why it happened, predictive is what will happen and prescriptive is what to do,” said Morris. “You need pattern recognition and flexibility. It’s not good enough to know how something will happen; what will you do when it does?”