As supply chains reel, retailers adapt to keep shelves stocked

No busi­ness has escaped the sup­ply chain squeezes of the last few years, but the impact is par­tic­u­lar­ly imme­di­ate for retail­ers, who often rely on the ‘just in time’ (JIT) mod­el to get goods on the shelves. So how are they cop­ing? 

The sup­ply chain dis­rup­tion has tak­en a huge toll for many com­pa­nies. It’s not a sin­gle issue, notes Emile Naus, for­mer­ly head of logis­tics strat­e­gy at Marks & Spencer and now a part­ner at man­age­ment and tech con­sul­tan­cy Bear­ing­Point. Instead, it’s “the cumu­la­tive effect of Covid result­ing in tem­po­rary labour short­ages as well as long-term labour migra­tion, trans­port issues due to dis­rupt­ed flows and loss of capac­i­ty, war in Ukraine and the over­all dis­rup­tion to sales, demand changes and cost infla­tion”.

There have been tem­po­rary but high-pro­file short­ages of sta­ples such as loo roll, pas­ta and anti-bac­te­r­i­al wipes, large­ly as a result of pan­ic-buy­ing in March 2020. Even so, brands and retail­ers have large­ly man­aged to keep shelves well stocked. How have they man­aged it? 

Price rises and admin headaches

It hasn’t been easy. Take Silent Pool, which sells its arti­san gins in some 45 coun­tries and just won the Queen’s Award for Enter­prise for Inter­na­tion­al Trade. Accord­ing to founder and man­ag­ing direc­tor Ian McCul­loch, events such as Brex­it have meant an increase in paper­work, while cash has been tied up in raw mate­ri­als from the EU as the com­pa­ny has to hold greater stocks. There has also been a mas­sive increase in ship­ping costs, he says, “dri­ven in part by the gov­ern­ment using con­tain­ers as tem­po­rary stor­age at ports.” 

The busi­ness has seen delays of up to three weeks on some longer ship­ping routes, with con­tain­er prices up more than 1,000%, McCul­loch says. In response, they send larg­er loads less fre­quent­ly, which has impact­ed cash­flow. “We are cur­rent­ly absorb­ing price ris­es in raw mate­ri­als and trans­port but at some point will need to pass them on.”

No retail­er is immune from these types of chal­lenges, even the likes of super­mar­ket giant Tesco. “It is fair to say that our sup­ply chain has been test­ed this past year,” says its CEO Ken Mur­phy. “But thanks to good plan­ning and great col­lab­o­ra­tion from our sup­pli­ers, we kept prod­ucts mov­ing and pro­tect­ed avail­abil­i­ty.” 

In fact, Mur­phy has cred­it­ed the resilience of Tesco’s sup­ply chain in help­ing it out­per­form the wider mar­ket in the last year, thanks to long­stand­ing sup­pli­er rela­tion­ships and lever­ag­ing new sup­ply routes, such as rail. The group now has a ded­i­cat­ed train ser­vice bring­ing pro­duce to its dis­tri­b­u­tion net­work from Spain.

Retail­ers across all sec­tors have been forced to nav­i­gate these chal­lenges. In the short term this may have meant tweaks to prod­uct ranges and pro­mo­tions, with most retail­ers lim­it­ing their range and focus­ing on high­er val­ue, high­er-mar­gin prod­ucts, says Naus.  

 “This has been quite explic­it in some sec­tors, but the trend is vis­i­ble across all retail­ers.”

But in the longer term, pro­cure­ment offi­cers and their teams are hav­ing to take a broad­er look at how they man­age their sup­ply chains. “Retail­ers are respond­ing by chang­ing their sup­ply chains to ensure they have more resilience built-in,” Naus says. “This means hav­ing sev­er­al sup­ply options, mov­ing some pro­duc­tion clos­er to the end mar­ket and chang­ing man­u­fac­tur­ing strate­gies.”

End of the road for just in time?

Some changes to strat­e­gy have been sweep­ing. For exam­ple, instead of using a hand­ful of cen­tralised ware­hous­es and ful­fil­ment cen­tres that can ship glob­al­ly, many retail­ers are now opt­ing for dis­trib­uted inven­to­ry mod­els, with mul­ti­ple small­er ful­fil­ment cen­tres, says Enda Bres­lin, gen­er­al man­ag­er for EMEA at logis­tics and ful­fil­ment firm Ship­Bob. 

“These dis­trib­uted inven­to­ry mod­els are allow­ing retail­ers to cut dis­tances from sup­pli­ers and to cus­tomers,” he says. “This will also be key for bot­tom lines as they spend less on ware­hous­ing old stock, goods stuck in con­tain­ers or at sea, expen­sive ship­ping meth­ods and deliv­er­ing prod­ucts to the end user.”

The JIT mod­el is now “out of the win­dow for many retail­ers,” he adds. “While it’s an effi­cient method in a per­fect world, its vul­ner­a­bil­i­ty in a cri­sis is clear to see.” Instead, there’s a clear trend of retail­ers near-shoring sup­pli­ers. For exam­ple, cloth­ing man­u­fac­tur­ers are switch­ing from Chi­nese sup­pli­ers to part­ners in coun­tries like India or Turkey. “Although these may not be on the doorstep of many, being clos­er to your sup­pli­ers helps mit­i­gate risk.”

Many retail­ers are also work­ing with a larg­er pool of sup­pli­ers, says Rob Wright, exec­u­tive direc­tor at sup­ply chain and logis­tics con­sul­tants SCALA. Rely­ing on a nar­row range of sup­pli­ers makes them more sus­cep­ti­ble to dis­rup­tions in sup­ply chains, he notes, so they’re look­ing to diver­si­fy. 

“Sup­ply chain dis­rup­tion is often spe­cif­ic to geo­graph­i­cal area and a diverse logis­tics net­work gives retail­ers more flex­i­bil­i­ty and agili­ty when it comes to sup­ply chain man­age­ment and mit­i­gates some of the risks of dis­rup­tion to cer­tain sup­ply chains,” he adds. 

Learning new lessons

Retail­ers are also look­ing to address the effects of sup­ply chain dis­rup­tion by invest­ing in tech­nol­o­gy, Wright says. For exam­ple, alter­na­tive fuel tech­nolo­gies such as elec­tric haulage fleets help mit­i­gate the effects of fuel short­ages we’re see­ing from the war in Ukraine. 

“It also helps busi­ness­es to hit their car­bon emis­sions tar­gets which is noto­ri­ous­ly dif­fi­cult for busi­ness­es that rely on large sup­ply chain net­works,” he adds.

These oper­a­tional changes reflect some invalu­able lessons that the last few years have taught sup­ply chain man­agers and pro­cure­ment offi­cers, says Naus. Busi­ness­es are learn­ing that for the past 30 years, there has been too much focus on prices and cost reduc­tion, ““and the bal­ance of sus­tain­abil­i­ty, flex­i­bil­i­ty and resilience has been lost,” he says. “In the short term, the focus is on ‘fight­ing fires’ and ensur­ing day-to-day prod­uct sup­ply. But the long-term fix is to pri­ori­tise sus­tain­abil­i­ty, flex­i­bil­i­ty and resilience.”

This approach means retail­ers can ensure that no mat­ter the sup­ply chain chaos, their cus­tomers are nev­er again faced with emp­ty shelves.