The Real Reason Supply Chain Leaders Stay Worried About Empty Retail Shelves
Over the past several years, the American public has witnessed several massive supply chain disruptions, with many consumer products we often take for granted vanishing before our very eyes.
Electronics at big retail stores. Toilet paper for consumers. Even ketchup in restaurant to-go bags was not immune during the pandemic. But in reality, it’s not as if the trees or cotton plants needed to make toilet paper or the tomatoes needed to make ketchup stopped growing. So what really is causing retailer shelves to go bare?
The truth is that there are very few cases where a genuine supply shortage (e.g. underproduction) is the reason for a product to disappear from shelves. In reality, the product has been produced, but a bottleneck in the distribution network prevents the products from making their way onto store shelves in quantities commensurate with consumer demand.
This bottleneck creates the temporary illusion of scarcity, which can then trigger so-called “panic buying” behavior and thus a vicious cycle begins where panics can trigger actual shortages.
Research suggests that during a panic, consumers are driven by “competitive arousal” to overcome scarcity, rather than to satisfy an underlying need. Experts suggest that people will panic buy an item that they neither want nor need simply because they perceive it to be scarce.
Thus, the bottlenecks in supply distribution are the root cause of empty shelves, and that’s a key reason why supply chain managers are still worried: in many industries these bottlenecks are either sticking around or have gotten worse, due to the problem of “missing heads” (i.e. missing headcount). Missing heads from a supply chain team means that queues of orders may take longer to get reviewed and approved, leading to a net increase in cycle time on orders.
If a person retires, or quits, or is out sick, that cycle time can increase unpredictably, which will impact the amount of time that a shipment has to reach its destination in order to avoid a stockout. Unpredictable operational cycle times for retail can lead to empty shelves, perceived scarcity, stockouts, panic buying, and re-ordering, which leaves an inventory glut. Ultimately, sudden spikes in demand leave retailers holding the bag. This problem was so severe in the aftermath of panic buying from post-COVID waitlists that Modern Retail dubbed 2022 “the year of the inventory glut.”
If the source of these waitlists in 2021 was congested ports and freight lines, the reason they persist in 2022 and 2023 is related to congested order approval lines due to missing heads. While simply having one or two procurement professionals out of the office or having one or two open procurement roles may not seem like a big deal, the downstream impact of the delays associated with long queues of procurement tasks being left undone can be extraordinary and disastrous. When cycle times elongate, the price associated with expediting a supply replenishment, or simply paying more for a faster delivery window, can dramatically increase costs and erode margins for retailers.
The main reason the “missing heads” situation is currently so dire is that we’re just coming off the “Great Resignation” — including a wave of baby boomers retiring — only to hit recession fears that are driving headcount reductions. Supply chain teams are often told to “run lean” or “do more with less” — which is a recipe for unpredictable cycle times and bottlenecked orders.
Oftentimes, procurement requires technical knowledge of the market and supply base, creating a “knowledge gap” consisting of the ramp time needed to acquire the necessary knowledge to perform the job at the proficiency of the previous workforce. And it almost always requires strong relationships with suppliers, in that predecessors in procurement roles have likely built solid rapport with suppliers over years and even decades in order to be effective at their jobs.
This creates a “relationship gap” — the ramp time it takes to build relationships with suppliers.
The combination of the “knowledge gap” with the “relationship gap” makes procurement much more transactional and much less strategically effective, leading to inevitable misses.
The answer is not as simple as simply wholesale replacing retiring supply managers with new workers who lack the knowledge and relationships of their predecessors. Study after study shows that supply chain managers need more professionalization, training, and communities of practice — not less. And yet for retail organizations who have become used to having high turnover in front line workers, executive teams may not fully appreciate the sense of urgency and the acuteness of the impact around recruiting, retaining and streamlining the transfer of institutional knowledge and relationships.
Forward-looking management teams are being proactive by identifying workers nearing retirement and also those prime for attrition because they are exceptionally high performers. And they're creating incentives for those workers to document their knowledge and store their supplier relationship data in centralized collaboration systems to enhance the resiliency and the value of their teams. Increasingly, this practice of creating a “knowledge base” is viewed as critical for supply chain resiliency, as it is the only practical long-term solution to “missing heads.” In some cases, recently retired workers are being hired back as consultants to perform this very type of critical infrastructure-building.
Going beyond documenting, we’re also seeing retailers implement ways to derive insights from retiring and exiting workers and embed their preferences in procurement processes using predictive models and real-time observability layers. This concept of “predictive procurement orchestration” which stores knowledge in a set of dynamic scenarios has been gaining traction as it can quickly enable novice procurement employees with the knowledge base and supplier relationship insights of people on their team who have been doing the job for decades.
In summary, the reason that supply managers are staying worried about empty shelves is that the root cause of shortages — unpredictable cycle times due to missing heads — has not abated. As we emerge from the Great Resignation into fears of recession and pressures around headcount reductions, retailers need to overcome the knowledge and relationship gaps in their organizations and make sure their procurement systems perpetuate the best decisions and preferences of their best employees, even those employees that are no longer there.
— Edmund Zagorin, Chief Strategy Officer, Arkestro
