Since the start of the Covid-19 pandemic in 2020, the world has dealt with supply chain issues. It is not a surprise for customers to walk into stores with empty shelves or for companies to not receive shipments from their overseas suppliers. As we welcome 2022, we also welcome new supply chain challenges. Here are the challenges retailers may face in their supply chain operations in 2022 and some tips for overcoming them.
1. Insufficient materials to meet customer demand
At the beginning of the pandemic, we have witnessed an increased demand (hoarding!) for toilet paper, pasta, canned food, and disinfectant sprays. As we proceeded with the pandemic and working from home became a reality for the majority, the demand for home-office appliances like webcams and microphones increased. Then as we slowly started going out and getting used to the new normal, people realized that public transportation was not the best option because of virus transmissions, which increased the demand for cars.
Thankfully, those zombie apocalypse movie-like scenes at the supermarkets are over; but the uncertainties in demand like sudden increase or decrease will continue in 2022. It is not easy for companies to cope with customers’ sudden increases in demand without agile planning capabilities. In addition, there are disruptions in the manufacturing of parts and supplies of raw materials. Leading to long lead times, shortages, rising prices, and complications in transportation lines.
The ongoing chip crisis since last year affecting 100+ industries is the best example: supply couldn’t meet the increased demand, which led to rising prices and shortages in computers, cars, and pretty much any other electronics product with chips. As we have seen in 2021, businesses automated and integrated supply chain planning capabilities, including demand-sensing, dynamic safety-stock management, inventory optimization, and external collaboration. Having end-to-end visibility will manage their supply chains more effectively in light of uncertainty, avoid stock-outs and keep their customers happy.
2. Changing trends in lifestyle and impacts on fashion retail
Pretty much all around the world, lockdowns and ever-changing curfew hours have been a reality for customers in 2021. Although we may not go back to those days (hopefully!), this experience has changed how we dress and exercise. We stopped going to the gyms and favored outdoor activities or at-home exercises. Many of us tried at least once to follow along with the most-watched home cardio workout video on Youtube or went for their first run around the neighborhood.
In 2022, the stars of the fitness world are still outdoor sports and at-home workouts. While increasing demand for at-home exercise equipment also expedited the expansion of the online wellness industry. We witnessed a surge in mobile wellness applications, online personal training, meditation, and yoga workshops more accessible to everyone around the globe. Ultimately, sportswear companies were the winners, and fashion companies changed their assortments to include active and lounge collections.
Retailers who specialized in business attire were forced to reassess their place in the new world, and many of them started including more casual-chic styles for their customers. With the changing preferences and new ideas being tested, taking a test-read-and-react approach to assortment planning, leveraging advanced analytics and AI/ML technology for forecasting, and changing the way they order and interact with their suppliers to minimize risk will continue to be essential for fashion brands. As many retailers will look into sourcing products locally, re-evaluating their supply and logistics networks for optimizing their supply chains will be more critical than ever.
3. Managing uncertainty through digitization and automation of Supply Chain Planning
The competition will be higher than ever in 2022 as companies are constantly stepping up their game to respond to changing dynamics in their supply chains. Digitizing end-to-end supply chain planning is crucial to stay ahead of competitors and create the best value for customers. Manual analysis and high-touch planning are being replaced by automation leveraging advanced analytics. Embedding AI/ML capabilities into decision-making can significantly cut costs and increase service levels. Finding better ways to process data to make higher quality decisions taking into variabilities in supplier performance, lead times, and inventory availability and leveraging diagnostic, predictive, and prescriptive capabilities to automate, speed up and improve agility in supply chain management will be one of the biggest differentiators for retailers in 2022.
4. Improving visibility across the supply chain by combining internal and external data
The uncertainty during the pandemic has led supply chain planning to have a clear visual of the goods, stocks, inventory, and customer demand at all times more than ever. There is no room for slow-decision making caused by the lack of information in 2022. Using cloud-based and real-time platforms combining internal data such as inventory and sales transactions with external data such as advanced shipment notifications from vendors and shipment status from couriers can help track and manage surprises across the supply chain in real-time.
5. Impact of changing costs on customer demand
Due to the pandemic and the economic difficulties experienced concurrently, costs continue to increase across many industries like grocery and fashion. Although higher prices could be seen as a tool for businesses to recover from the lockdowns, it may not always be true. Understanding how different prices affect customer demand and finding the optimal price levels for a favorable profit is essential in 2022. Now, planning systems need to incorporate algorithms working with price elasticity, and scenario planning becomes even more relevant with costs also going up, so calculating expected margins need to be more dynamic.
6. Delivering speed and convenience through local fulfillment
E-commerce keeps shaping our shopping habits. During the pandemic, consumers got used to home deliveries. With their expectations for speed getting higher, a new type of retail business is emerging: Quick-Commerce.
E-commerce companies need to step up their supply chain game in 2022 to meet their customers’ higher expectations and stay competitive in the industry. 2-day deliveries are not so fast anymore! Quick commerce companies are setting up micro fulfillment centers (MFCs), promising delivery within 15 minutes using bicycles or motorcycles. However, determining the optimal location of these local fulfillment facilities to minimize logistics costs will be crucial to operate efficiently and grow profitably.
7. Climate impacts on agriculture and food supply chain management
The problems like rising sea levels and drought caused by the climate crisis will continue to increase in 2022. Due to climate change, grocery suppliers face volatility in supply, and retailers face unforeseen transportation issues. Adding to it, the disruptions created by the pandemic since last year, the supply chains have become highly unreliable. This could lead to empty shelves and unmet customer demand in 2022. Managing fresh and ultra-fresh food supply chains are especially challenging due to the short shelf lives of these products. Giving attention to geographic threats and engaging in deep relations with local suppliers to minimize risks, logistics delays, and potential breakdowns due to outbreaks in other countries will help companies fight against these obstacles. The dynamic nature of the supplier network and working with smaller suppliers will require integrated and agile planning and purchasing systems that can help manage the whole ecosystem and adapt to different levels of digital maturity.
8. Increasing sales points of interaction and delivering omnichannel fulfillment
Since the start of the pandemic, the world has witnessed major store closures of even well-known brands. Fashion customers are moving towards online shopping practices, but according to KPMG research, they still prefer to shop from brands that offer both physical and online stores.
In 2022, offering omnichannel sales across websites, social media, mobile apps, and brick-and-mortar stores will be highly crucial. Managing inventory across all interaction mediums, including online and offline channels, requires real-time inventory tracking and omnichannel order fulfillment and transportation planning capabilities to optimize service levels while minimizing logistics costs. Although increasing availability across all channels of interaction with this new complexity to the order fulfillment dynamic is challenging, it can be achieved through end-to-end integrated planning platforms offering concurrent optimization capabilities.
To sum up, there are many challenges retail supply chain operations may encounter in the coming year. Many of the supply chain planning challenges in 2021 will still be relevant in 2022. Adopting next-generation integrated planning and analytics platforms with digital workflows, advanced analytics, AI/ML, and automation capabilities will be the way winners will differentiate themselves.