New Year, Same Factors Impact Retailers: Disruption and Digital Transformation

By Mark Burstein, Executive Vice President, Industry & Market Development, Logility

In the past, most retailers sourced products offshore. The model was largely adopted to produce large volumes of product at low prices. But consider the problems associated with that model, particularly with our overreliance on China.

Now, reshoring, nearshoring and friendshoring are becoming more prevalent in hopes retailers can employ such practices to help smooth out their supply chains. In doing so, they must vet and onboard new suppliers, which can be a time-consuming process.

Vendor evaluation, onboarding and compliance are nearly impossible to manage with a manual system of email, spreadsheets and attachments. This is where a technology solution, in particular a digital supply chain platform for integrated vendor management, comes into play. Such a solution helps onboard, organize, vet and manage vendors in a systematic, efficient and integrated way — resulting in better sourcing decisions, overall compliance and risk mitigation.

Historically, over-ordering was the norm because retailers were concerned they would miss sales to consumers. They would rather capture 100% of full-price sales as possible. Then, whatever didn’t sell quickly, they would mark down or purge.

Big-box brands like Target, Walmart, Macy’s and Best Buy faced a combined $45 billion in excess inventory over the summer. It’s understandable since these companies likely looked at historical data since the pandemic began — a time in which many items were back-ordered and shelves were empty of certain items.

To better balance inventory, retailers can look to demand sensing. Demand sensing is the translation of market-based demand information to detect short-term buying patterns. Machine learning-based forecasting can provide methods to better sense and respond to demand changes to meet the pressure of customer service requirements without inventory bloat and lost profits.

Best-in-class organizations will adopt digital supply chain capabilities or be left behind by nimbler and more efficient competitors.

Today’s conscious consumers want data regarding the social and environmental impact behind the products they buy. Consider the negative press Shein continues receiving over issues that include forced labor, for example.

Plus, current and future legislation is forcing organizations to reveal their social and environmental metrics of their supply chain partners.

Not only should retailers set clear expectations and foster better communication and collaboration with suppliers, but they should deploy traceability tools to document the chain of custody from material origin to importer of record. Retailers can build responsive, sustainable supply chains by combining social and environmental audits with real-time supply chain management data.

According to KPMG, six in 10 organizations plan to invest in digital technology to bolster their supply chain processes, data synthesis and analysis capabilities.

The Association of Supply Chain Management underscores the importance of digital transformation: “Best-in-class organizations will adopt digital supply chain capabilities or be left behind by nimbler and more efficient competitors.”

Change is constant in retail, but the right digital supply chain planning solutions can help retailers become more resilient and get inventory and sustainability right.