Agility and responsiveness aren’t just key requirements to play in the NBA. They’re equally essential to big business. And since consumers have unlimited options and little patience, retailers need to act quickly and make efficiency a top priority. That’s why having a transparent, highly-visible supply chain is the best way to get products to market as fast as possible while avoiding logistical hiccups. Take away that transparency, and the system crumbles.
Sourcing Journal and Bamboo Rose surveyed 123 retail and supply chain professionals to understand how they approach supply chain visibility in today’s consumer-driven market. Results revealed that inefficient, fragmented supply chains were the root cause of a variety of costly problems. Here are the top six:
A whopping 87 percent of survey respondents said they experience inventory imbalances, either from ordering too much or too little. And half of that group said imbalances happen far too often to count. While it may seem like a cumbersome cause of doing business, these inconsistencies actually pose an insidious threat to major brands. When full-price retailers hand overstock to secondary markets, like a Ross or a TJ Maxx, they essentially feed their direct competition. According to a 2017 report, every time a Macy’s location shutters its doors, a Marshalls store gains 29 percent of its traffic. In fact, in 2017, the secondary retail market grew 2.6 percent, bringing its total profit to $569 billion. So what’s the answer to avoiding inventory imbalances? Harvard Business School professor, Ananth Raman, says retailers need to stop using analytics or predictive tools and rely simply on a more streamlined supply chain.
Lack of Capital
“A major KPI for retailers is sell through,” says Jeff Streader, managing director for strategic investment firm Go Global. “If you can consistently sell through four to six times, you’ve done a great job and your markdowns are minimal.” However, if retailers’ supply chains are inefficient, riddled with inconsistencies and communication gaps, they often get saddled with overstock, and that means they need more working capital to keep business afloat. For this survey, 36 percent of respondents said they have less working capital than in the past, and 21 percent cite excess inventory as the number-one culprit. So when C-suite staff sees shrinking profit margins, it’s less likely they’re going to invest more money in technology that could help improve supply chain visibility.
When it comes to supply chain processes, less is more, and streamlined efficiency is key. But when asked how retailers track their products’ lifecycle, they responded with a mixed bag of several siloed solutions. Fifty percent of survey respondents said they rely on Excel, Google Docs, email, and other internal tools. And all agreed, these processes are way too fragmented to operate a well-oiled supply chain. The biggest challenge, one person said, is “the lack of a seamless PLM backbone,” which would help in creating better visibility. Other commenters had similar concerns, saying these systems don’t integrate with or talk to one another. As a result, data remains trapped in these silos, making it difficult to extract, analyze, and share.
Because of the challenges involved in unloading extra inventory, retailers tend to order small and ship fast. And according to Dale Rogers, professor of logistics and supply chain management, this isn’t founded in bad judgment. In fact, he says it’s better to bet on expedited shipping, because with extra inventory, retailers just aren’t as flexible. In a single click, they can order additional product and have it shipped next day. But problems arise when shipments start to become unreliable. Despite using expedited shipping, 32 percent of survey respondents said they experience late shipments up to 75 percent of the time. Even worse: 23 percent said they aren’t able to map out proper sales strategies because they don’t know when their products will even arrive.
Goals would be so much easier to achieve if those pesky obstacles weren’t in the way. And in a world where retailers aim to improve speed to market, gain better control of stock levels, place smaller, more frequent orders, and maintain fresh assortments of increased SKUs, the main obstacle is communication—or lack thereof. One survey respondent mentioned siloed management at the retail or brand level makes for slow and inaccurate communication between factories and suppliers. “These poor factories give, give, give, and their margins are down. They’re being asked to hold inventory, and they’re getting paid in 90 days,” says Streader. The answer, he emphasizes, is transparency. “The onus isn’t having your vendors work smarter,” he says. “The onus is providing them with the tools to monitor your inventory. The onus is on the retailer.”
Posed with serious financial threats from inventory imbalances, shipping inconsistencies, and fragmented processes, retail execs often hesitate to introduce any new technology, like a highly visible, streamlined supply chain platform. More specifically, they’re reluctant to ask a board of directors to take a leap of faith on a single end-to-end solution, since it’s too daunting of a change. That’s why Raman says software changes need to be made hand-in-hand with organizational changes. “Senior managers don’t understand the value of visibility into the supply chain,” he says. “If you just introduce the technology alone, it doesn’t work.” Everybody needs to be on the same team, and that includes executives, retailers, and all supply chain partners.
Want to learn more about the current climate of supply chain visibility? Read the complete report here.