10 Supply Chain Roadblocks That Could Derail Modern Retail
October 26, 2022
Until the 1920s, most people shopped at the local corner store or small-town square. Then came chain and department stores with larger quantities and selections of goods, encouraging shoppers to view a trip to the store as an experience. The first shopping mall was built in 1956, and big-name retailers quickly began to overtake the smaller mom-and-pop establishments.
Still, no evolution has changed the retail landscape quite like eCommerce. Modern retail is a new frontier that has enabled virtually anyone with a computer and a product to sell their wares to the masses. But with all that change has come a host of complexities that many retailers and suppliers alike struggle to overcome.
Here are 10 supply chain challenges that can cause major disruption in the retail industry:
- Omnichannel Complexities
- Inventory Visibility
- High Labor Costs
- Disparate Systems
- Surge in Orders
- Customer Expectations
- Fulfillment Model Inexperience
- Operational Inefficiencies
- Slim Profit Margins
As consumers demand options like online ordering, in-store pickup, endless aisle and product assortments, and free returns, channel boundaries are blurring. The steps involved in fulfilling orders and delivering the right product at the right time to the right location have become increasingly complex. A consumer can buy a shirt online, return it to the store, and exchange it for something completely different. How does the retailer track all those dynamic paths of fulfillment—especially when managing a global supply chain?
Today’s sellers need to implement integrated solutions that can handle these diverse channels while ensuring a streamlined customer experience that appears completely unified on the front end. TrueCommerce, for example, enables brands to manage sales from various channels all in one place. You can present a cohesive experience no matter how your customers are shopping.
For the order fulfillment process to be successful, you must have a clear and accurate understanding of your inventory, both virtual and actual. What do you have on hand (quantity by SKU)? Where is it physically located across your supply chain? Do your systems and sales channels reflect this information accurately and in real time? If you can’t answer these questions, then there are inefficiencies built into your supply chain management processes that will hamper your productivity, efficiency, and profitability.
For example, retailers who require their suppliers to drop ship directly to consumers rely on real-time inventory data feeds from their suppliers to avoid order failures. In the drop ship scenario, retailers advertise products that are stored in and shipped directly from their suppliers’ warehouses. As products sell, inventory quantities decrease, but without real-time inventory data updates, the retailer has little visibility into whether the particular item has been sold or how many products are currently in stock.
When inventory data isn’t shared across channels, it can lead to an array of supply chain problems, such as selling products you don’t have. You’d then need to fix the issue and probably deal with the loss of the customer, many of whom will switch companies after a bad experience.
On the other hand, without inventory updates to your channels, you might not be able to show your available inventory and lose out on potential sales. Syncing up your inventory into a centralized, visible location is a necessary part of modern retail operations, allowing you to keep pace with multiple channels and fast-paced changes.
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Labor costs vary by industry and can make up a significant chunk of revenue. A common rule of thumb is to aim for labor costs below 30% of revenue. Without a clear plan for automation, these costs can skyrocket as customer demand increases and compliance becomes more complex. Keeping labor costs low is vital for a retailer’s profitability.
Say an eCommerce retailer starts to experience some growth in consumer spend. It hires more staff members to manage the influx of orders, meet customer demands and address the complexity of shipping items to other countries. Unfortunately, all these new staff members continue to use repetitive tasks and manual entry, which leads to errors. These errors might create upset customers, a lack of inventory at other locations or poor relationships with suppliers. They could hurt the retailer’s profits, reputation, and efficiency.
The retailer might be tempted to hire more employees, thinking that a lighter workload would decrease errors, but it only erodes profit margins even further. Automated solutions are essential for any retailer with plans for growth. They can offset the cost of labor and provide consistent performance to avoid compounding the errors that come with manual entry and increasing labor costs.
Disconnected systems and processes don’t lend themselves to seamless, end-to-end consumer engagement. With each new supply chain challenge comes new technology to address it. Before you know it, you may have up to ten apps and systems operating independently, leading to redundancies and inefficiency, ultimately adding to the precise supply chain issues you were trying to solve.
If you’re running an eCommerce site then you’re likely utilizing that platform and associated apps, a back-office system or enterprise resource planning (ERP) system, some kind of customer relationship management (CRM) system, perhaps a web-based EDI solution, an order management tool, and several other digital solutions.
If you’re running a brick-and-mortar location in addition to an eCommerce site, you’re likely using even more solutions, across more vendors. Without integration, those systems aren’t sharing information, and updating one doesn’t update the others. That creates a lot of manual entry, confusion, and likely a fair amount of anxiety!
Connecting these systems allows them to communicate better and can greatly simplify your workflow while avoiding errors and delays. You may even be able to implement new functions that were impossible to use before.
One of the most common reasons businesses search out integrated EDI is due to a sudden surge in orders, which requires a company to change their approach to supply chain management. Perhaps you had omnichannel complexities and disparate systems creating a subtle bottleneck of manual order entry, but they probably didn’t cause much trouble until your orders began to increase in number and frequency.
Think of these issues as cracks in a dam, only apparent when the dam is full of water and begins to fail. These demand spikes can compound with labor costs and issues, making it difficult to manage a team that’s always changing.
Automation and digital transformation can again help you handle evolving business demands and get rid of bottlenecks. Whatever your busy season looks like, automated systems can prevent you from falling behind or struggling to adapt to customer needs.
The multichannel consumer has increasing demands when it comes to convenience, personalization, and speed. With no shortage of options, it is a perpetual buyer’s market, and buyers expect an experience that integrates brick-and-mortar shopping with web-based, app-based, and social channels.
For example, if a shopper finds the item they want is out of stock at one retail store, they can place an order right then to have it shipped from another store to either their home or the retail store closest to them. In the instance that a website order needs to be shipped directly to the consumer’s home, a distributed order management process is required to determine the closest distribution center or store from which to ship it.
Customer communications need to be cohesive and unified, to present a single front to your buyers. When the buying experience feels disjointed, it can make the customer feel that your company is behind the times. It makes things more frustrating for the buyers and often comes with disconnected back-end systems, too.
Running an eCommerce business — either in tandem with brick-and-mortar locations or individually — means that order fulfillment is an integral part of your operations. As your business grows, you may find that in-house fulfillment is no longer feasible. This is when you may consider outsourcing your logistics processes — including warehousing, picking and packing, and shipping — to a third-party logistics (3PL) partner.
3PL providers can fill the gaps by taking care of complicated processes with the utmost efficiency. Since these businesses focus only on 3PL, they typically have greater resources and expertise to devote to the job. Along with providing better service, they usually have efficiency down to a science, so they can significantly lower the costs of high-quality fulfillment. Just make sure that you can communicate with your 3PL provider. TrueCommerce simplifies integration to help 3PL providers and their partners stay on the same page.
When buying products and dealing with shipments from various suppliers, many organizations opt to mandate EDI to unify the way data is shared electronically. You might develop business rules to ensure that trading partners comply with your specific EDI processes. Ultimately, these requirements help both parties avoid supply chain errors and maintain consistency in order fulfillment and delivery timelines. EDI compliance benefits both the retailer and the supplier. It can help you build better trading partner relationships and automate what would otherwise be very time-consuming and error-prone processes.
For retailers, noncompliance can complicate your supply chain. You likely have tried-and-true processes in place that help you move like a well-oiled machine. If a supplier disrupts those processes by, for example, not packaging a pallet properly or sending an advanced shipping notice (ASN) late, you need to spend time and labor fixing the issue. Those resources add to the costs of running the business and can cause problems down the line.
If a shipment doesn’t arrive at the expected time, for example, it could be delivered at the same time as another shipment, leaving employees and truck drivers scrambling to stick to their schedule and delaying the other delivery. If noncompliance is a recurring problem, you might be dealing with late shipments, empty shelves, dissatisfied customers, productivity issues, and a host of other problems that get in the way of your business goals.
Establishing fast, automated EDI is key to growth in modern retail environments. It’s necessary if you want to maintain fast-paced, accurate operations and work with a wide variety of partners.
Using infrastructure that is not suited for a growing omnichannel supply chain leads to a dependency on manual, error-prone processes. For example, a non-integrated EDI solution may work well when trading with one or two trading partners. But as you add trading partners and your orders increase, you’ll need to opt for full integration of your EDI software into your ERP or back-office system to prevent order errors.
If your organization supports omnichannel transactions and advanced EDI requirements, such as drop shipping or buy-online-pick-up-in-store, you may have an added emphasis on distributed order and inventory management. These demands create more opportunities for efficiency issues and can create bottlenecks in your processing.
Let’s say a customer needs to order some new shoes to be delivered to a brick-and-mortar store. You would need a system that can determine the closest distribution center or brick-and-mortar store with those shoes in stock. Alternatively, you could leverage data feeds from a supplier to expedite and monitor the shipping timeline. Your system also needs to make inventory adjustments appropriately, preventing the shoes from being seen as sellable in the system. And of course, the customer’s information needs to stay linked to the order.
Without these automated systems, you’re looking at a significantly longer timeline, which can be the difference between a customer shopping with you or your competitor. Automating distribution and fulfillment are now a priority for many industry leaders. It can speed up operations, save cost and free up time for more important tasks that can grow your business.
Profits in the retail industry have historically been thin, with net margins ranging from 1.11% to 9.63%. These margins are further depleted by supply chain errors that result in lost sales.
For example, if your supply chain errors cause you to have empty shelves, inaccurate stock counts, or customer churn, they’re hurting your profits. Eliminating these errors can help you increase sales and profitability. Where profit margins are already slim, reducing labor costs is a great way to help expand them.
Higher costs come in many different forms. As you address some of the other problems we’ve discussed, you’ll likely find that profitability increases, too. You might, for instance, spend less on fines or penalties from compliance issues or save on payroll by eliminating time-consuming manual entry.
Overcoming Supply Chain Challenges
The challenges described above may seem unrelated, but they are all very much connected, each one touching another, like falling dominoes. An increase in orders without the systems infrastructure to support them will lead to higher labor costs (more people to handle orders/key EDI information) which will inevitably cause order errors and eat into your already thin profit margins. The solution is not another separate system, but rather deep integration across all channels. Only when your systems and apps communicate with one another will you experience true efficiency and scalability.
TrueCommerce can help you address supply chain challenges by integrating your ERP with key channels and trading partners. To learn more about TrueCommerce, reach out to us today.
About the Author: Peter is Vice President of Product Management-Retail with over 25 years of experience helping organizations in Retail and CPG leverage B2B integration throughout their supply chain by using data standards and technology to automate complex order and fulfillment processes. Peter is actively involved in industry trade and standards groups such as NRF, GS1, and RVCF. In addition, he is currently an advisory board member of the Center for Supply Chain Research at Lehigh University, where he actively participates in industry research. Peter is a veteran of the U.S. Navy and attended Central Texas College and Embry Riddle Aeronautical University, where he studied aviation and business management.
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