The pandemic has presented an unexpected opportunity for retailers to redesign their supply chains in response to the shift to online and the need for an evolved customer experience. As CFOs inject investment into business operations in a bid to return to business as usual, supply chains are under the spotlight as they’ve never been before.
Proxima’s Supply Chain specialists Neil Jordan and Johnathan Foster, explain why it is now the time to remodel and reassess operational agility to meet the changing demands of the ‘new normal’ retail environment.
The shift to online
Zara’s online sales jumped by 95% in May, and the trend is here to stay, with experts predicting that the future of shopping will be predominantly online, with bricks and mortar shopping limited to browsing. This lockdown e-commerce boom has been either a blessing or a curse for retailers. Those that have been able to embrace an online form quickly and have a portfolio of products ready to browse digitally are one step ahead. It’s also been an opportunity for smaller retailers to build brand exposure and a godsend for more established players who are generating significant revenue while streamlining their offering.
But for the less adept retailers, the rapid increase in online demand has exposed flaws in business models, and the impact of poorly handled panic buying and spike purchase patterns has been detrimental.
Adjusting to the new normal
Nimble is the new supply chain Nirvana and being both diverse and innovative will be key to success in the new retail landscape.
In the short term, normal spending habits will eventually bounce back, and consumers will return to bricks and mortar shopping, but the retail winners post-pandemic will be those that have responded and adapted to demand patterns and built the necessary resilience for the future. For example, building density into a stock hub, improving reverse logistics schemes, and warehouse planning should all be on the agenda for retail businesses looking to thrive.
Automation has become a buzzword during these strange times, with the realization that it can be cost-effective and efficient. A strategic focus on automation also opens up opportunities for a multitude of supply chains for different products to manage increased demand, peaks, and troughs in consumer requirements. Welcoming in automation tools and processes when redesigning supply chain networks will be a gamechanger moving forward.
Responding to consumer trends
As e-commerce reigns, increased online orders means reverse logistics are under strain, with some product categories facing 60% return rates. Understanding the true cost of a supply chain is key, and the biggest challenge in achieving this visibility is when a product is returned, calculating the cost of it leaving and the cost of it coming back into the network.
Returns erode margin in businesses when not managed properly – one way businesses can dilute the impact is by building a separate returns network, either managed independently on-site or through an outsourced returns specialist. Retailers should look to review and assess their reverse logistics programs so that they are fit for a future of e-commerce and increased returns.
Basket abandonment is an issue that retailers have always struggled with. Lockdown has helped combat it, with increased online spending resulting in greater basket sizes and better payment follow-through. It’s the percentage of items in the basket that are returned that has now become the problem. Businesses must ensure they have a defined process to filter out the products with high return rates and add stipulations or fees for returning said items, to minimize the cost impact.
Visibility, adaptability, resilience
Visibility of the end-to-end supply chain, willingness to adapt, and a resilient network will be key targets for retail businesses re-engineering their processes in light of the pandemic. Whether it’s responding to panic buying, managing endless returns, or navigating cost-cutting initiatives, the nimble organization will thrive, and the reactive will struggle.