What do diapers, computer chips, lumber, and your morning coffee have in common? They are all getting more difficult to procure right now, thanks to the unprecedented supply chain disruption caused by the worldwide COVID-19 pandemic.
Where’s the oat milk?
At the start of the pandemic, Starbucks emerged as a retail winner, rapidly pivoting from its “third place” branding strategy to one that is more technology-reliant.
By springing into action to fast track further development of its mobile ordering platform, loyalty programs and curbside and delivery options, Starbucks initially emerged from the pandemic relatively unscathed, with its U.S. sales already back to pre-pandemic levels earlier this year.
Starbucks’ strong digital game allowed the retailer to retain its customer base because it swiftly found a way to still give consumers what they wanted, despite the inability to welcome them into its stores. But all the quick thinking in the world cannot fix something completely out of even Starbucks’ control—a global supply chain breakdown.
Like many other retailers all over the world, Starbucks is experiencing shortages of everything from peach juice and oat milk to straws, lids and even cups in which to pour its famous beverages.
“If there’s one thing that the COVID-19 pandemic has exposed more than anything, it is just how brittle our supply chain is, and it’s brittle everywhere,” said Paula Rosenblum, managing partner and co-founder of Retail Systems Research, when she joined RETHINK Retail on a recent episode of Retail Rundown to host a discussion about supply chain agility. “We’ve seen shortages impacting nearly every industry out there.”
Why the shock?
Rosenblum asked supply chain expert Gary Newbury what caused such unpredictability in the supply chain, and he said it was largely due to cost-cutting.
“We are able to achieve a lower cost of operating for divesting ourselves of inventory, which we might need. Reducing our headcount, which we might need. Reducing the size of facilities, which we might need. And reducing our overall number of facilities, which we might need,” he said. “Why might we need it? We might need it for a rainy day, like a pandemic.”
According to Newbury, retailers have become under-resourced, under-talented, and under-prepared to deal with anything other than business as usual.
Liza Amlani, principal at Retail Strategy Group, spoke more on Retail Rundown about the lack of preparedness. “From a merchant perspective, retail workers had to go from customer service and product experts to fulfillment and logistics roles that they’re not even trained for. They were inherently unprepared for any sort of shift.”
Furthermore, Amlani said the tendency for retail teams to work in silos was just one example of “traditional ways of working that just were not working anymore.”
As we emerge from the fallout, what’s next?
Companies have a great opportunity to learn from this unprecedented supply chain disruption. So, apart from cutting fewer costs, improving staff preparedness, and ditching the silo approach, what should companies do now to make their supply chains more agile?
Focus on assortment planning
Amlani believes it starts with assortment planning—specifically by relying less on seasonal merchandise and more on advanced analytics to optimize the supply chain.
“If we started to infuse more seasonless product, we wouldn’t be dependent on drops,” she said. “Four drops a month in some cases with the fast fashion retailers of the world.”
She said further, “data and analytics could help us predict what the customer actually wants, when they want it, and in which channel they want it.”
Embrace process innovations
The ability to switch flexibly among products a company manufactures is a must, observed Amlani.
“There’s a lot of work being done around materials management and to manage those materials better so that you’re not developing new stuff every single season,” she said.
Specifically, digital product creation using technologies like 3D printing will allow manufacturers to economically produce an ever-expanding array of items in much higher quantities and with less waste, creating a sustainability impact as well.
Concentrate on capacity
Supply Chain Game Changer points out that any and all opportunities to source with multiple parties should be considered and become a part of the supply chain structure. On the Retail Rundown, Newbury explained why he agrees with this opinion.
“Instead of our single sourcing to get the bulk discounts, to get over the minimum orders, we need to collaborate with multiple suppliers—maybe in different regimes so we have capacity,” he said. “And we have to have a very clear visibility of capacity.”
What does Newbury mean by visibility of capacity? He suggests actual meetings where suppliers provide a somewhat transparent look into their systems so companies can determine the best course of action, remaining indifferent about which supplier to use and concentrating on the capacities of the suppliers in the short-range.
He explained, “Collaboration is opening your books. ‘This is the profit we’re going to make on this. We want to share this profit between us equitably so that we both win. If we’re working together and you’re able to deliver the demand that we want you to deliver, and we pass it out to stores and it’s successful, we both win’. Until we move to that situation of open books, we can talk about collaboration all we like, but the reality is we’re still in conflict.”
The Retail Rundown experts all agree with Newbury that “companies need those flexible options and need to test them frequently because part of agility is to be able to move from one state to another effortlessly.”
In summary
As our podcast host summed up, the COVID-19 pandemic was an accelerant that fired up preexisting issues in the supply chain and brought practices such as cost-cutting and a silo mentality to the forefront. While some businesses were hit so hard by the disruption they won’t bounce back, there were some winners, like Starbucks. But across the board, assortment planning, digital innovation and capacity maximization must be major priorities if an indestructible supply chain is to become a reality.
