"Demand was greater than available inventory" was a common theme in many retailers' earnings announcements in early Q1 of 2022. Bed, Bath & Beyond, Best Buy, and Abercrombie & Fitch were among several retailers noting not having enough inventory during the 2021 holiday season:
Indeed, port disruptions and inland supply chain upheavals resulted in delivery delays for many retailers. Some retailers mitigate these risks by diversifying the number of U.S. ports they use and ordering more inventory much earlier than usual.
For instance, The Gap plans to move the majority of its products through U.S. Eastern and Southern ports, "where delays are materially better than on the West Coast," CEO Sonia Syngal said during the company's latest earnings call. In addition, the company is increasing its sourcing in Mexico and Central America and undergoing what it describes as an "end-to-end supply chain transformation."
Retailers are diversifying ports, suppliers, and carriers to ensure speedier deliveries and capacity. But at what cost? When implemented correctly, diversification is a smart strategy; however, it could lead to higher costs and delays elsewhere in supply chains.
For example, including ports that are further away from warehouses or stores could lead to higher inland transportation costs and potential delays if the ports do not have the right equipment — or enough of it — to handle a retailer's imports.
Adding more suppliers is always a smart move, but vetting these suppliers in terms of work, labor, and sustainable practices is important. Extending visibility capabilities beyond tier one and tier two suppliers is also important. If not managed correctly, the costs in terms of finances, quality of goods, and delivery timings could be expensive.
Carrier diversification also is important for capacity purposes. Capacity constraints throughout supply chains have plagued retailers and resulted in delivery delays in the middle and final miles. However, don't forget the rates! Establishing a good working relationship with your carriers goes a long way in helping to mitigate costs, capacity, and so much more.
As part of its supply chain transformation, The Gap is investing in inventory management capabilities that involve using predictive analytics and data "to better forecast and make us more agile and precise about where we place product… to meet customer demand," according to a transcript of its earnings call posted by the Motley Fool on March 4, 2022.
According to a 2021 survey from market research firm Coresight Research, of the 170 respondents surveyed:
Furthermore, only 17% of surveyed respondents indicated they use more advanced forecasting techniques such as real-time machine learning-powered models. The highest percentage, 37%, use Excel-based forecasting, while 20% use manual "gut-based" forecasting models.
Coresight estimates that advanced demand forecasting could measure at 90% or greater inventory management accuracy.
Retailers do not foresee improvements anytime soon. Low inventory levels and strong consumer demand will likely drive strong imports and increased demand for trucking and other transportation services in the coming months.
Dr. Sheng Lu, a professor at the University of Delaware, told The Wall Street Journal that he estimates that retailers will see average delays of one to two months on shipments this spring.
Whereas John Idol, CEO of Michael Kors parent Capri Holdings Ltd., said disruptions would continue for at least the next six months. "We don't see it actually improving," he told analysts in early February.
The uncertain environment will lead more retailers to invest in agile supply chains, including data analytics, and build and maintain strong relationships with supply chain partners.Follow the Intelligent Audit blog for more insights from the world of logistics and supply chains.
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