Retailers and consumer goods companies are still struggling to address a double shock to their supply chains: COVID-19 disruptions combined with surging online sales and rising customer expectations.
To better understand how leadership teams are addressing these challenges, Bain joined forces with Microsoft to examine supply chain–related investment plans and priorities at 70 U.S. companies. Our research revealed three critical changes in retail and consumer goods supply chain management. The most striking is a new willingness among senior executives to make trade-offs between cost, speed and resilience. Many who once viewed their supply chain as a cost center now see it as a strategic capability.
Of the companies we surveyed, just over 90% plan changes to their supply chain networks, including supplier location, flexibility and overall footprint. And more than 40% expect to increase their total supply chain investment with the primary goal of improving speed, agility and resilience.
In a second key shift, retail and consumer goods leadership teams are starting to include top supply chain managers in strategic decision making, acknowledging that supply chain data and insights are vital to their business success. Of the companies we surveyed, 67% expect their supply chain organizations to provide input to most or all major strategic decisions, such as merchandising, store operations and product strategy—an increase of 11 percentage points over the 12-month period prior to COVID-19.
Our survey shows retail and consumer goods companies are focusing supply chain investments in three critical areas: omnichannel fulfillment, predictive planning and flexible operations.
Speed, agility and resilience
Traditional supply chain management has been all about streamlining, but the pandemic exposed the risk of a narrow focus on cost efficiency, concentrating supply with one or two large sources and limiting buffer capacity. Our study shows that the share of executives rating cost efficiency as one of their top two supply chain goals fell by 13 percentage points, while agility rose by 24 percentage points.
The cost of agility and resilience is a distributed set of suppliers and operations. It also includes investment in technology that provides a high degree of transparency past tier 1 suppliers to tiers 2, 3 and 4. Redundancy often seems expendable—until it isn’t.
Successful retailers and consumer goods companies have started constructing flexible supply networks including alternative suppliers, manufacturing sites and assembly nodes; multiple customer fulfillment options; and forward deployment of inventory. They also make the most of Industry 4.0 tools to optimize costs, improve visibility across the network and accelerate reaction times. As they take those steps, leadership teams are making critical trade-offs between efficiency, convenience and responsiveness to improve resilience.
COVID-19 has prompted leadership teams around the world to reassess just how vital supply chains are to their companies’ success. Until recently, supply chain managers have largely acted as order takers, delivering goods from merchants to warehouses or stores at the cheapest cost per mile. To minimize future supply shocks, many retailers and consumer goods companies now plan to give their supply chain managers a greater role in strategic decision-making. Some already have begun incorporating supply chain data and insights into business strategy.
The reason is clear. Resilience requires more transparent supply chains. Leading retailers and consumer goods companies are using cloud-based supply chain applications and other tools that can share information with their networks of suppliers and partners. During the COVID-19 crisis, many manufacturers demanded greater visibility into their suppliers’ own supply chains—a practice worth continuing.
Likewise, “control tower” solutions that integrate data across the entire supply chain, along with 5G technology and blockchain, offer executives real-time visibility and allow them to calibrate supply and demand during normal times, as well as react to supply and demand shocks. The ability to compare production capacity with real-time demand signals will be critical to weathering future supply chain shocks.
Omnichannel fulfillment. Traditionally, retailers and consumer goods companies have relied on large, centralized facilities to fulfill online orders efficiently. Even before Covid-19, retailers faced growing pressure to fulfill digital orders faster. Our research shows that nearly 60% of retailers and consumer goods companies now plan to increase their investment in multiple facilities that can respond to online orders.
Take the example of Target, which has begun using its more than 1,800 US stores as mini fulfillment hubs that can respond faster to online orders than a central fulfillment center. That shift, accelerated during the pandemic, helped Target sustain sales during the lockdown despite store closures. In April 2020, Target’s digital sales rose 282% year over year, with stores fulfilling 80% of digital orders.
Predictive planning and demand forecasting. To improve supply chain resilience, retailers and consumer goods companies need better visibility into network constraints and bottlenecks, as well as additional channels to avoid blockages. That means understanding real-time consumer demand and anticipating where, geographically, demand is likely to crop up. For instance, will major sporting events create short-term demand spikes for beverages and snacks? Our findings show that 56% of retail and consumer goods companies plan to increase investments in predictive planning and demand forecasting.
Flexible operations. Our research shows that 53% of retailers and consumer goods companies are planning to increase investments in flexible operations. Many of these leaders are teaming up with partners to speed fulfillment and delivery. Walmart, for instance, has partnered with several companies, including DoorDash, to get items to customers quickly.
COVID-19 has created a sense of urgency for change. Successful companies are looking to invest in the right capabilities for the long term. They start by reevaluating the trade-offs made for efficiency that may put the company at greater risk and increasing data collection across the entire supply network. Where they find gaps, they are deploying the technology and talent to build a supply chain better able to respond to future shocks.
Mikey Vu is a partner with Bain & Company’s retail and operations practices and is based in Austin, Texas. He has more than 10 years of consulting experience, with a primary focus on merchandising, supply chain, digital tools, advanced analytics and disruptive technology.