There has been a lot of headlines and analysis recently generated by the media concerning the impacts of the COVID-19 global pandemic and what it all means for the retail industry. Much of the writing and reporting thus far has, for good or ill, focused on some of the more significant ramifications that have come about as a result of these uncertain times, including the rashes of insolvencies and store closures that have occurred over the course of the past year, as well as the marked decrease in retail sales in 2020. Well documented is the substantial reduction in physical store traffic and the growing hesitancy of today’s consumer to visit brick-and-mortar locations – trends that are believed by many to have been abetted and exacerbated by government-imposed lockdowns and restrictions across the country. The subsequent and drastic change in consumer behaviour has also been discussed at length, a shift most noticeably represented by the sharp uptick in online spending last year. And as the notion that these trends could be sustained through to a post-pandemic world becomes more widely accepted, the idea of the ‘pivot’ is being proffered as the solution to the challenges and a means by which to capitalize on new opportunities. However, according to retail supply chain and last mile expert, Gary Newbury, although this may be the case, without a sufficient reevaluation and reimagination of the retail supply chain, any pivots attempted could go unsupported, rendering them as disingenuous substitutes for meaningful change to capabilities and performance and a significant reorientation of direction.
“One of the most interesting aspects of the supply chain is that it resides within and impacts the public domain,” he says. “As a result, the average consumer has a relatively broad understanding of what the supply chain is in that they know a failure in its execution means that they may not have access to their day-to-day items at their grocery store. The pandemic and subsequent lockdowns have brought the retail supply chain into sharper focus, making it of greater concern to consumers. And one might argue that if it’s of concern to consumers that it’s surely a concern of retailers. Though this is obviously true to an extent, in order to properly address these concerns and the challenges inherent in today’s retail supply chain, a rethink and reinvention of their operational model is required. The problem is, retailers aren’t accustomed to thinking of their supply chains as strategic instruments within their toolkits. That’s going to need to change if they want to evolve with shopping trends and achieve their desired goals.”
Aligning the Chain
One company that knows a thing or two about the strategic use of the supply chain, acknowledges Newbury, is Amazon. He describes the online behemoth as “one massive supply network”, and quite rightly so. Operating 175 distribution centres in 15 marketplaces around the world – 106 in the United States and 16 in Canada – the e-commerce giant has managed to develop an expansive yet flat model of distribution to facilitate the delivery of the more than 5 billion packages that left its centres in 2020. It’s a mind-numbing statistic, and one that, according to Statista, amounts to an astounding 13.7 percent share of the total global e-commerce market. What’s equally impressive, however, is the fact that the Amazon last mile delivery network, which it launched in the U.S. in 2014, accounted for the delivery of an estimated 3.5 billion (70 percent) of those packages. In a class of its own, Newbury doesn’t expect any single retailer to be able to compete with the strength of Amazon’s e-commerce and distribution capabilities. But he suggests that the horizontal nature of its operations is something that retailers should take note of as they continue engineering ways by which to address the mounting pressures felt by their supply chains.
“There’s a systemic issue within most retail operations with respect to the way the supply chain is aligned across the organization,” he says. “And until retailers adopt a different approach, their supply chains will remain tucked away in inconvenient pockets. Logistics – transportation and warehousing – is often in one bucket. Sometimes it’s split. Receiving product on the dock or in the back room lies with the stores. Purchase ordering is the responsibility of merchandising. There’s some ambiguity around demand planning with respect to where it lives within the current structure. Allocation is a subset of merchandising. As a result, the entire retail supply chain is incredibly fragmented and doesn’t ever join up to any great effect. While we were in a steady-state world, the way things worked was effective enough to generate 2 percent year-over-year comparable store growth. But when there’s disruption that results in significant demand shifts, because there is no horizontalization to their approach, retailers are left without a proper understanding of the situation and the ways to meet the quickly evolving demand.”
Change Is Inevitable
The considerable disruption that’s been caused by COVID-19 has certainly resulted in the contemplation of change by retailers the world over as we move into year two of our current pandemic-state. In a recent survey of supply chain professionals conducted by the global association, Council of Supply Chain Management Professionals (CSCMP), 75 percent of respondents say that the pandemic is prompting them to make moderate to extreme changes within their supply chains. The top planned changes identified within the survey’s findings are improvements to IT capabilities (61 percent), human resources (58 percent), risk management (58 percent), sourcing strategy (46 percent), inventory management (37 percent) and transportation (26 percent). And, although siloed systems and processes topped the list of barriers to supply chain and logistics innovation, a range of disparate responses meant that only 17 percent ranked it as such. Newbury stresses the importance of removing those siloes that exist within todays retail supply chain, but suggests that the issue might run even deeper.
“To start to address the challenge of defragmenting and horizontalizing the supply chain, retailers will be required to open up a wider discussion around the format of their organizational structure,” he suggests. “As an example, the role of marketing within the retail hierarchy needs to change in order to help direct the business and its supply chain. Marketers have been dispossessed for quite some time now of the pivotal role that they should be serving in order to help organizations understand where the profitability is, and to determine the trends that need to be created within the marketplace and the capabilities that are necessary to ensure the execution of the organizational vision. Marketing needs to be in a position that’s more than just communications. It needs to be positioned properly in order to help guide, inform buying, create interest and drive traffic to the various retail channels. Without the true integration of inputs from marketing, retailers can only see facets of the vast supply chain puzzle that need to be considered rather than the whole. As a result, the supply chain is seen more as a series of tactics that are executed in isolation, holding retailers back from leveraging their supply networks to their fullest, and preventing them from learning from their mistakes and adding real value to their consumer.”
In addition to emphasizing the importance of creating a horizontal approach to supply chain operations – one in which each cog of the machine possesses a holistic understanding of the entire process – Newbury also recognizes the potential that technology poses for retailers in their quest to better understand and forecast trends impacting their businesses. According to the CSCMP survey, 62 percent of respondents agree or strongly agree that customer experience will become the top differentiating factor for brands within the next 5 years. And when asked which supply chain capabilities will be most important toward delivering an enhanced customer experience, the digitization of the supply chain and use of business intelligence, analytics and machine learning (16 percent) was ranked third by respondents, surpassed only by the narrowing of delivery time windows (17 percent) and providing real-time visibility to orders, shipments and inventories (36 percent), surely two areas that would be supported by digital means. The possibilities that the proper use of technology could present to retailers in their efforts to create more resilient and agile supply chains are recognized by Newbury. However, he points again to the need to create a horizontally-integrated structure to supply, adding that its creation represents the enabler to a true end to end digitization of retail supply networks.
“If you’re limited to only digitizing parts or fragments of the operation, you’re always going to end up with data that’s suboptimal and of little use to the organization,” he asserts. “In order to truly digitize the supply chain, the siloes that currently exist have got to be removed. Once this is achieved, a true digitization of the network can take place, followed by the layering of artificial intelligence which can then be properly applied to a single set of data, allowing the retailer to interrogate their own processes and ways of doing things, ask creative questions that they couldn’t have asked prior and help to inform solutions that can enable enhancements and improvements. If the siloes are removed, artificial intelligence and machine learning has the potential to help retailers optimize their operations toward greater efficiency and effectiveness.”
In fact, the capacity inherent in the use of artificial intelligence and machine learning to revolutionize a retail business, according to Newbury, is immense. It can be used to help bridge gaps between the physical and online environment, virtually erasing the lines that define omnichannel, paving the way toward a truly single retail marketplace and offering. And, with the ability to decipher and make sense of some of the granularity of retail, including consumption trends and projections of a given neighbourhood or locale, organizations can equip themselves with a level of data and insights that can inform strategy and decisions related to their utilization of store networks, the services they offer, buying, merchandising, marketing and everything else along the digital chain. Though the implementation of such systems, along with the organizational restructuring that Newbury suggests needs to take place ahead of digital considerations, might prove a daunting task for many, the rewards can be transformational.
New Disciplines to Deliver Value
Given the complexities of the retail supply chain, combined with the requirements associated with meeting the evolving behaviours and demands of the modern, digitally-connected consumer, it’s obvious that the challenges facing today’s supply chain professional reach farther and deeper than the horizontalization and digitization of systems and processes. However, according to Newbury, they represent the catalyst required to move organizations forward, and can provide them with the necessary forcing functions that could equate to greater success in fulfilling the fundamental role and responsibilities of the retail supply chain.
“The definition of the supply chain and the purpose it’s meant to serve hasn’t changed for decades. It’s about aligning all of the different elements of the network in a way that consistently delivers value to the consumer. But when we look at the situation retailers are currently wading through, coupled with the ways in which their networks are set up to work, it’s clear that a supply chain rethink should be on the immediate agenda for many organizations. If we attempt to think ahead to a possible return to something close to normal, when the vaccine’s been effectively rolled out and people are feeling comfortable once again visiting their favourite stores, it’s probably safe to suggest that it may not be until summer 2022. If that’s the case, we’ll be looking at two-and-a-half years of this weird kind of stasis, during which time consumer behaviour around shopping online is likely to become even more entrenched. And in response, retailers are going to be required to develop, acquire and enforce new disciplines within their organizations in order to evolve their supply chains and meet the demands of a rapidly changing retail landscape.”