The Supply Chain Christmas List That Retailers Should Check Twice

While many people view the holidays as the most wonderful time of the year, this peak season can be far less merry for retailers' supply chains.

Retailers must strategically balance perceived and actual product demand, manage in-stock inventory levels and cash-to-cash cycle, and navigate shifts in the consumer and competitive landscape. Couple these challenges with the National Retail Federation and Hackett Associates' prediction of an 8.3 percent November year-over-year increase in shipments, and it's clear why the holidays can be one of the most stressful times of the year for retailers' supply chains.

The general rise of online shopping is also impacting retailers' supply chains this holiday season. With increasing numbers of online shopping consumers ordering products at the last moment and expecting their favorite items to arrive instantly, retailers must manage planned and immediate demand and its effects on their supply chains. With planned demand, retailers typically develop inventory forecasting and promotion plans months in advance to help guide their supply chain operations and decisions. Many retailers are still establishing ways to efficiently manage their supply chains around immediate demand from consumers shopping online.

While these factors increase the strain on retailers' supply chains during the holidays, there are many ways retailers can streamline their supply chain operations and reduce forecasting risk during this peak season.

Retailers can strive to move and store inventory closer to their consumers. Instead of storing inventory in a few large warehouses in the middle of the country and shipping product vast distances to physical stores and consumers, an increasing number of retailers are using "satellite" warehouses in targeted locations. By adopting this strategy, retailers can better satisfy immediate demand by reducing the distance and time inventory travels in the final leg of its journey. Studying consumer buying patterns can help retailers determine where their "satellite" warehouses should be located.

Manufacturing partnerships
Retailers can also work with manufacturers who have nimble manufacturing cycles. Though manufacturers have historically preferred established processes and assembly lines that can rapidly produce countless versions of the same product, today's consumers demand a wider variety of products at their fingertips. Thus, retailers should look to work with manufacturers who have multiple production lines that can adapt and create many different goods, not just one line with one consistent product. This can help reduce time and money spent producing inventory that is in less demand.  

How can forecasting help?
Additionally, while inventory forecasting is not an exact science, retailers should collaborate across multiple departments to develop competitive, attractive products that create a consistent wave of consumer demand. Creating a steady stream of demand can help to generate more reliable forecasting. To do this, any internal silos between supply chain, marketing, finance, manufacturing, distribution and other departments need to be dissolved. For example, thorough marketing plans, which incorporate information like order sizes and delivery frequencies across various channels and outlets, are essential to establishing consumer demand. Integrating both manufacturing and distribution resource planning can help retailers strategically decide how best to procure product and ship and store their inventory. By aligning all aspects of their business, retailers will be able to better minimize forecasting risk.

Retailers can also aim to increase transparency with their manufacturers throughout the supply chain, further improving the purchase order management process. By understanding the timing of when their inventory will be shipped and arrive at ports, warehouses and physical stores, retailers can identify and resolve bottlenecks in the overall process. On a more immediate, day-to-day level, they can also share these timely updates with their customer service teams who often interface with consumers. 

The upside of corporate trade
Another way that retailers can improve their supply chain operations and reduce forecasting risk is by using corporate trade. In corporate trade, a company's excess inventory is purchased with trade credits, cash or a combination of both. Payment is usually equal to the wholesale value of the inventory. In exchange for purchasing the surplus goods above market value, companies agree to make business purchases through corporate trade firms using the trade credits and cash. These expenditures include freight and logistics, among other purchases like advertising, marketing and travel services.

Corporate trade allows retailers to streamline inventory movement and ease the impacts of forecasting miscalculations. If supply chain discrepancies arise due to market conditions shifting suddenly, demand may be reduced after the distribution process has started. While the retailer hasn't made any errors or oversights, it may nonetheless have to adhere to contractual agreements with its partners to move goods for which there is now little demand. Corporate trade can provide a solution by purchasing the unsold units at a premium to market value at any point in the supply chain, turning what would be a financial loss into money spent toward other expenses.

While the holiday season can be particularly busy for retailers' supply chain operations, there are fortunately many ways that retailers can improve their operations and minimize risk during this time. While economies of scale are still important in the supply chain world, it is increasingly crucial for retailers to continuously reevaluate and reengineer their operations to increase efficiency and flexibility. Collaboration and transparency are essential, especially with today's quickly evolving marketplace and consumers, and the strategies discussed above incorporate these concepts in various ways. The good news is that by working to streamline operations and minimize risk over the course of the year, retailers can likely look forward to a much happier holiday season.

Hector Rodriguez is president of Active Freight & Logistics, a logistics management services firm.

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