3 FAQs for Managing Retail Supply Chain Disruption
3 FAQs for Managing Retail Supply Chain Disruption
The COVID-19 pandemic exposed the fissures in global supply chains, with recent disruptions proving costly, complex and chronic. Retailers will likely continue to face headwinds in 2022, a cause for concern following a turbulent year. Constraints on transportation and capacity, supply shortages, rising costs and frustrated customers threaten to impede recovery and growth.
Many supply chain industry pundits would have us believe the situation will get worse — that severe shortages and delays will continue through 2022 and potentially well beyond, and that businesses will be at the mercy of external factors outside of their control. Fortunately, retailers have options to minimize the impact to their supply chains with a little clarity, discipline and direction.
To help you navigate the next 12 months, we’ve answered three frequently asked questions from our clients on how to optimize their supply chains amid constant uncertainty and disruption.
Question 1: Does a “China Plus One” strategy adequately diversify my supply chain?
By now, most U.S. businesses and consumers understand that far-flung global supply chains were too dependent on China. Before the pandemic, many business leaders had already begun shifting away from China in the wake of the previous Administration’s tariff challenges, IP disputes and the ensuing trade war. Factory and port shutdowns in China in the early days of the pandemic, as well as the preemptive purchasing of key supplies by the Chinese government, were wakeup calls for those that hadn’t seriously considered alternative sources of supply. An enduring lesson from COVID is that sole sourcing from any vendor or vendors in one location comes with a high-risk level.
Building redundancy into the supply chain at different tiers and maintaining inventory levels have become guiding principles for retailers coming out of the pandemic. The “China Plus One” strategy has been on the radar of companies with China operations for several years but motivation to change didn’t materialize until the trade war and pandemic. The need to diversify supply chains is now a priority, with many retailers actively pursuing a “China Plus One” strategy by supplementing sourcing from China with another country in Southeast Asia. However, the supply chain crisis of the past two years shows this strategy may also be failing. As long as the goods produced are an ocean away from the markets that consume them, uncertainty from various disruptive factors can lead to shortages, higher costs, lower revenues and customer dissatisfaction.
Where to focus now
While decoupling from China is part of the equation, truly de-risking the supply chain comes down to three things: optionality, redundancy and market proximity to your customers. Redundancies should be intentionally created to avoid a single point of failure. And while fully onshoring production and/or sources of supply may not be operationally, economically or logistically feasible, the supply network is less risky when it is closer to the market where it’s consumed. This is why 30% of retail CFOs say they plan to reshore production to the U.S. in 2022, according to our 2022 Retail CFO Outlook Survey.
Engage with new suppliers and contract manufacturers in the Americas to better serve the U.S. market.
You should also review your supply base for any overreliance on a single source or geography, then consider options to minimize the distance between where your products are produced and where they’re purchased. Insourcing, onshoring, nearshoring and acquisitions are all on the table. The approach that makes sense for your business must consider cost, capacity, quality, control and reputation, but regardless of your approach, the goal should be to improve supply chain resilience and flexibility so you can better manage the disruptions.
“Whether you need to determine the optimal location for relocating facilities, negotiate a favorable incentives package with local authorities or analyze the tax implications of operational shifts, our team is here to help. We’ll work alongside you to transform your supply chain from a source of stress into a value driver for your entire business.”
– Tom Stringer, Site Selection & Business Incentives National Leader, BDO USA
Question 2: Does having a backup plan mean I’m prepared for future supply chain disruption?
Maybe, if that backup plan has built-in agility and can be adapted and activated swiftly based on a variety of external factors. In the last two years, many retailers discovered static backup plans were not adequate to address the rapidly changing conditions across the globe. These backup strategies were not agile enough to be effective amid the complexities COVID presented, so retailers were challenged to get the level of service they needed from existing suppliers or quickly identify new suppliers, resulting in processes that simply were not feasible from an implementation or sustainable cost standpoint.
Backup plans have their place, but they’re generally based on known risks. As global supply chains grow more intertwined and the universe of uncertainty expands, new risks and variables come into play. You can’t just plan for one contingency — you need to weigh the outcomes of multiple options across different scenarios. Changes in manufacturing locations and sourcing strategies aren’t the only scenarios worth evaluating, nor is resilience to disruption the only outcome worth measuring. For example, if you’re considering expanding into a new market or adding to your product mix, those strategic adjustments should be factored into your supply chain model and assessed for plausibility. Tax liabilities, trade compliance risks and total cost to serve are no less critical considerations than deliverability or lead times.
The reality is you cannot prepare for every contingency, so scenario planning needs to evolve to detect signals of disruption earlier and enable greater agility in supply chain decision-making when the unexpected occurs.
Where to focus now
Review your supply chain model to reflect current constraints, incorporate points of vulnerability, and conduct a scenario planning exercise to address a specific problem or inform your next strategic move. Ideally, you should simulate multiple scenarios to pressure test the supply chain, anticipate issues and chart the best path forward when disruption hits. Scenario planning should become a regular business practice so you can quickly respond to unforeseen events.
"To succeed in today’s dynamic global business environment, your supply chain needs to be agile. Our team will work with you to develop an adaptable supply chain strategy that empowers you to swiftly navigate disruption and capture emerging opportunities. A backup plan is good — having an always-on, dynamic and flexible approach to your supply chain is better.”
– Chad Fleeger, Director, Supply Chain Practice, BDO USA
Question 3: Is there anything I can do for my customers about delivery delays?
While order delays are sometimes inevitable when demand outpaces supply and logistics networks are overwhelmed, that doesn’t mean your business is helpless to combat their impact. Customers still want their express and same-day shipping, but a failure to communicate delays ahead of time erodes brand reputation and loyalty. You can create an exceptional customer experience if you are proactive and transparent. For customers, having transparent access to information on the status of their order is important to prevent them from feeling uninformed and helpless. Leaving customers in the dark is far worse than preemptively sharing bad news. You should also consider relocating supply chain operations to reduce lead and delivery times. This won’t be an immediate fix, as shifting facilities or finding and partnering with a new supplier can be a months-long and sometimes a multi-year process.
Where to focus now
To set more realistic expectations and communicate delays, update delivery times on your e-commerce and mobile commerce platforms and in personalized communications. These platforms should prioritize ease of accessibility so customers don’t have to spend time hunting down status information. Consider providing push notifications of status changes and self-service tools to allow customers to track their orders and reduce the volume of shipping inquiries and complaints. Also think about adopting digital tools, such as radio-frequency identification (RFID) tags, ERP software, integrating with business partners and leveraging blockchain to improve supply chain visibility. Advanced analytics can enable you to use the data collected by these tools to predict potential supply chain issues weeks or months before they materialize. This will improve your ability to manage inventory stock in response to shifts in supply and demand and help you to communicate proactively with customers or shift to an alternate supply stream to avoid delays altogether.
“To maintain high-quality customer service levels, the supply chain of the future needs to be intelligent, responsive and flexible. Our team will help you harness the power of your data to improve planning and avoid disruptions to service levels no matter what comes your way.”
- Maurice Liddell, BDO Digital Market Leader, Manufacturing, BDO USA