The retail supply chain has weathered a major transition jumpstarted by COVID. But what’s next?
Like many industries, retail experienced a major transition during the COVID-19 pandemic as its customers’ shopping preferences and behaviors underwent radical changes. Now, the industry is weighing what the lessons of the pandemic were—and what should come next.
For retailers, there is no time to recuperate. The pandemic helped underline the intricate complexity of the retail supply chain, as well as the necessity of retailers to be prepared for the unexpected and to equip themselves to adjust and adapt no matter the newest challenge.
“As witnessed throughout the pandemic, supply chain disruptions can happen at any time and can significantly impact retail operations,” said Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation. “Retailers continue to focus on visibility, resiliency and diversification in order to mitigate future disruptions to the supply chain.”
Nothing was more transformative to retailers during the pandemic than shoppers feverishly flocking to online shopping. Bill Denbigh, vice president of product marketing at MHI member Tecsys, said the field “has evolved significantly” in the past few years, seeing rapid, unexpected changes through the acceleration of ecommerce.
“This has put greater pressure on supply chains and highlighted the importance of the physical aspects of logistics,” Denbigh said. “Retailers are now focusing more on their fulfillment efforts and looking into how to better leverage their physical supply chain assets to meet consumer expectations.”
James Sharpless, vice president of global business acceleration for MHI member Swisslog, agreed that the defining characteristic of the retail supply chain during the pandemic was the robust growth of ecommerce and the many ripples that caused for retailers.
“We’ve come through the COVID years, and COVID had a particular impact on the retail supply chain, which was to push the development of online fulfillment and ecommerce much faster than it would have carried on growing organically in the market,” Sharpless said. “So, we have a few years of accelerated growth in the online fulfillment piece. Now the world’s come back to normal, and everybody’s now reflecting on what that means.”
No shortage of post-pandemic challenges
The pandemic’s impact may have eased, but retailers continue to face an assortment of challenges with managing their supply chains. Sharpless said factors such as inflation, high interest rates, transportation costs and the availability and cost of labor are impacting retailers’ ability to manage their networks, their stores and their warehouses and achieve the margins they want to achieve. “They’re under threat for lots of reasons,” Sharpless said.
“Whether retailers can pass those costs on to their customers or whether they’re having to absorb that and try and be more efficient in the way they service their own supply chains, I think they are looking at what options they have to optimize the costs within their networks,” Sharpless said. “Most of them are looking at their current infrastructure, their current networks, their current warehouse space and are saying, how do we optimize that? How do we make the most out of the assets we have?”
Supply chain diversification is one of the retail supply chain’s chief challenges, in part because of the lessons of recent years, Gold said.
“There is more focus now to ensure better visibility and understanding of the entire supply chain, from raw materials to finished goods,” Gold said. “The pandemic presented several learning opportunities involving single sourcing products and new regulatory requirements to ensure products are not made with forced labor, and retailers are now spending more time understanding the entirety of their supply chains. This includes partnering and testing new supply chain tracing technologies and risk-based modeling to strengthen supplier relationships. The focus on visibility and transparency provides retailers better opportunities to respond when the next disruption occurs.”
Denbigh said the retail supply chain’s toughest challenges include contending with volatile inventories, diversifying sourcing away from China and managing labor market issues.
“These challenges are being addressed through strategies such as moving away from air freight, implementing more automation in warehouses, and focusing on hyperlocal fulfillment,” Denbigh said. “Retailers are also reassessing and reinvesting in digital technologies to better meet customer demand.”
Denbigh said retailers face a growing focus on regulatory compliance, particularly tied to environmental, social and governance issues.
“These elements are becoming increasingly important in the retail sector, reflecting a broader societal shift toward sustainability and ethical business practices,” Denbigh said.
Denbigh said the retail supply chain landscape is undergoing a notable shift toward digitalization and transparency in response to the pressures of the day.
“Retailers are placing an increased emphasis on enhancing customer experience and loyalty, and one of the ways they’re doing this is through item-level traceability across all industries,” Denbigh said. “This approach not only ensures accountability within the supply chain but also fosters better customer experiences.”
In that vein, retail customers are increasingly expecting a highly personalized shopping experience.
“Personalization at scale is complex, and it leads to more complexity and more personalization,” Denbigh said. “It’s not just hyper-personalization that’s complex. It’s being able to do it at scale. That’s the complexity.”
Technology is at the center of adjustments that retailers are making to strengthen their supply chains, and high-tech solutions are poised to play an increasingly important role in the years ahead.
“The retail supply chain is constantly evolving in order to find the best way to get the right product to the customer, regardless of whether it’s purchased in-store or online,” Gold said. “The evolution of sourcing, especially forecasting, is critical. Technology and automation are a big part of the evolution of the retail supply chain, especially as more and more retailers implement AI. The retail supply chain will continue to work to meet the needs of the ever-changing consumer.”
Labor availability and cost challenges are prompting many retailers to turn to software solutions, Denbigh said.
“These tools help automate and streamline various tasks, making processes more efficient,” Denbigh said. “Well-designed solutions also enhance the user experience, making it more intuitive and enjoyable to work in retail fulfillment. This combination of digitalization, transparency and automation is defining the retail supply chain landscape today.”
Denbigh said the importance of digitalization and automation will continue to grow in the years ahead.
“As online and hybrid shopping continue to grow, the challenges associated with retail fulfillment will only compound unless retailers act to mitigate them,” Denbigh said. “This could involve implementing or optimizing a hyperlocal fulfillment model and introducing more automation into warehouses. Additionally, the focus on environmental, social and governance issues is expected to become a true change agent for retail strategies.”