The COVID pandemic hit the world of retail with seismic force — and the industry’s supply chains had never seen such disruption. Online sales increased at their fastest rate in 12 years, accounting for 20% of all retail purchases in 2020. Grocery stores, pharmacies, and other essential retail outlets ran out of products when the crisis first hit as consumers stocked up on staples from toilet paper to hand sanitizer.
The rapidly shifting consumer demand left supply chains vulnerable, driving many companies to rethink their strategy and distribution plans. According to new research by Capgemini, 66% of retail organizations foresee significant changes to their supply chain strategy in the next three years as 88% faced disruptions and 71% took three or more months for their supply chains to recover.
Organizations must face the fact that in the new post-pandemic normal, this sort of volatility is bound to reoccur. As a result, retail organizations are realigning their strategies to focus on four critical areas:
1. Move from Demand Planning to Demand Sensing
Traditional demand planning uses one set of data to forecast for the next 30–60 days and does not account for short-term shifts that occur in real time. Capgemini research found that over two-thirds (68%) faced difficulties in demand planning due to a lack of accurate, up-to-date information on fluctuating customer demand during the pandemic.
To improve forecasting, 66% plan to segment supply chains according to demand patterns, product value, and regional dimensions post-pandemic, while 54% say they will use analytics or AI-machine learning for demand forecasting to address the impact of COVID-19.
2. Invest in Supply Chain Digitization for Better Visibility
Organizations now understand the significance of digital investments in improving visibility to create the agility needed to respond to sudden shifts in demand, as nearly 75% faced difficulties when needing to quickly increase or decrease production capacity due to COVID-19. According to Capgemini research, 58% of retailers are planning to increase investments in digitization of supply chains.
In fact, 47% are planning to invest in automation, 42% are planning to invest in robotics, and 42% in artificial intelligence. Two-thirds (67%) say there is an increasing focus on automation and robotics in production and warehousing.
3. Shift from Globalization to Hyper-Localization
COVID-19 has exposed the fault lines in staking everything on one country or region and increased the need for a more diverse supplier and manufacturing base. To prevent future disruption, 58% said they are actively investing in regionalizing or localizing their manufacturing base or nearshoring production and 65% are actively investing in regionalizing and localizing supplier base.
Additionally, in the next three years, global retail suppliers will only represent 25% of capacity (down from 36% currently) and global retail manufacturers will represent just 17% (down from 25% currently).
4. Overhaul Last-Mile Delivery to Manage Disruptions
The pandemic has transformed the way consumers shop, and as retailers tried to meet consumer demands through different digital channels, 72% faced difficulties in switching to online channels. In line with the move to localization, dark stores, which have independent operations and are closer to the delivery locations, are becoming an increasingly useful alternative for fulfilling online orders as physical footfall decreases.
Earlier Capgemini research showed that if deliveries from dark stores increase by 50%, profit margins could grow by 7% as a result of lower delivery costs and higher delivery throughput compared to stores
2020 was an accelerated learning event, and retailers realize that new technologies can enable much-needed agility, from improving demand predictions, to boosting fulfilment to quicker, cost-effective last-mile deliveries. By investing in new systems now, retailers can put themselves in good stead to safely support consumers in their time of need, whenever the next industry disruption may be.
Sanjay Dalwani is EVP of consumer products, retail and distribution at Capgemini North America.