Rick Maicki, managing director in the corporate finance practice at Berkeley Research Group (BRG)
Flexibility is crucial as retailers navigate current supply chain challenges and plan
for the future.
That’s one of the recommendations of Rick Maicki, managing director in the corporate finance practice at global consulting firm Berkeley Research Group (BRG), who spoke with Chain Store Age about the strategies retailers can use to overcome current supply chain challenges and successfully plan for the future.
What steps should retailers take for successfully supply chain planning ahead of Halloween, Thanksgiving, and the winter holidays? Flexibility, flexibility, flexibility – this will be critical. Retailers should plan for delays on the inbound side and develop a fast-track process for quick turns to get merchandise in and out of the distribution center once it arrives. They should also allocate smaller initial sets to stores, then plan to flow back to sales with smaller shipments. Also, retailers should align the marketing / promotional calendar closely with their supply of goods. Extend the season- and level-load promotions to pull in early holiday sales.
Why is it important for retailers to increase their omnichannel fulfillment capabilities? Inventory is constrained, so having it available to support demand regardless of where the customer is located will be paramount. Remember, stranded inventory equals lost sales. Also important to keep in mind is that last-mile delivery costs will be at an all-time high, given UPS/FedEx rates.
Avoid split shipments and ship from the closest point, such as the local store.
There will be expected delays in last-mile shipping as the holiday season progresses, so take action to flatten the traditional spikes around Cyber Monday and the last shipping day before Christmas. We also could see another COVID-19 outbreak impacting store traffic, so make sure that ship-from-store, buy-online-pickup-from-store (BOPIS), and curbside options are up, running and available.
What challenges are retailers facing tied to shipping costs and supply chains? Three key areas are impacted by supply chain issues; cost is only part of the challenge. Costs for off-shore shipping are up four to six times. Currently, there is no real way to mitigate these elevated expenses. So, if total logistics cost is 5-8% of net revenue, with inbound costing 1.5-2% of net revenue, the inbound cost is now 6%-10% of sales. That additional cost needs to be covered, either by higher prices or lower margins.
There are delays in getting a product in one part, as well as in having a product on time. Uncertainty is even bigger issue. Several retailers are raising prices via three mechanisms: softened discounts, slowed promotional cadence, and changed price tickets. It’s dynamical set pricing based on sales versus supply.
In addition to shipping and supply chain issues, retailers are facing staffing challenges. Most retailers have faced staffing issues all year long, as workers either don’t want to start or they only work for a few weeks, plus many long-time employees are leaving for different opportunities. Typically, during the holiday season there is a significant ramp-up of retail staffing both at stores and at the distribution centers. Last year, we saw $3-5 per hour jumps in hourly wages, and more hikes are expected.
You should have a plan for staffing to attract seasonal workers and reward existing associates for staying.
What are some supply chain to-dos for retailers? There are a few things I would definitely recommend. Provide freight forwarders forecasts of needs and give them flexibility. Encourage vendors to make bookings two to four weeks in advance, in order to lock in their slot. Secure partnerships and have a plan for adjusting flows, based on when the product comes in. Align, re-align, and monitor/re-align marketing to product supply. To reduce costs, aggressively manage outbound shipment profiles, with no split shipments and local fulfillment, to reduce costs.
Are there any specific issues retailers should watch out for? Look for a potential surge in COVD-19 cases, which would shift in-store shopping to e-commerce and curbside pick-up. Also, watch out for shutdowns at offshore ports and plants, many of the sourcing origin countries have much lower vaccination rates and have shown a willingness to shut down operations to contain pandemic spread. This would drive further disruption in the global supply chain. And last-mile shipping delays have become a common part of the holiday season. This year may top all previous years’ delays, as demand outstrips delivery capacity.