What’s In-Store: Your Retail Supply Chain Management Field Guide

The retail industry, a bustling arena where demand ebbs and flows like the tide, relies heavily on an efficient and well-managed supply chain. This field guide will navigate you through the intricacies of Retail Supply Chain Management, emphasizing why it's crucial, how to enhance it, and what the future holds for this vital aspect of retail.

What is Retail Supply Chain Management?

Retail Supply Chain Management, in its essence, is the art and science of efficiently overseeing the flow of goods, from manufacturers to consumers, ensuring that the right products are delivered at the right time and place. It even includes aspects such as supply chain sustainability, which incorporates elements like waste reduction, social responsibility, and ethical sourcing – some of which may even reduce costs.

Effective retail supply chain management encompasses the entire journey of a product, from its inception to the point of sale. It involves various stages, including procurement, production, distribution, and finally, the sale to customers. 

4 Primary Challenges in the Retail Supply Chain:

The retail industry, known for its competitive nature and rapidly changing consumer preferences, faces several challenges when it comes to supply chain management: 

1. Seasonality: Retailers often deal with seasonal demand fluctuations, which necessitate precise inventory management to meet consumer needs without overstocking or understocking.
2. Customer Expectations: Consumers expect a wide range of products, and they want them now. Meeting these demands requires efficient logistics and inventory management.
3. Global Sourcing: With products sourced from around the world, supply chains have become increasingly complex, making it essential to manage the flow of goods efficiently.
4. Market Competition: In a highly competitive environment, retailers need to differentiate themselves through their supply chain efficiency and customer service. 

Why is Retail Supply Chain Management Crucial?

Retail supply chain management costs are skyrocketing, and there doesn’t seem to be any sign of slowing down. According to the Council of Supply Chain Management Professionals State of Logistics report, we’re seeing the same trends.

• 22% rise in business logistics costs
• 22% increase in transportation costs
• 26% growth in inventory carrying costs

This means that retailers need to consider every way they can improve supply chain management processes, reduce unnecessary costs, and optimize budgets.

Manage Your Inventory Costs

Effective inventory management is at the core of retail supply chain management. These two components are in lock-step, impacting the entire supply chain. Holding excess inventory ties up capital, while too little inventory results in stockouts. Retailers need to strike the right balance to optimize costs.

Proper retail supply chain management helps to minimize carrying costs, including storage, insurance, and obsolescence. By leveraging data and technology, retailers can make informed decisions about when to reorder, in what quantities, and from which suppliers, thereby reducing unnecessary holding costs. 

Avoid Out-of-Stock Events

An "out-of-stock" or stockout event occurs when a retailer runs out of a particular product, leaving customers empty-handed. This can be a catastrophic event, damaging customer relationships and eroding brand loyalty. Stockouts not only cost a retailer immediate sales but also impact long-term customer trust.  In fact, 30% of consumers feel like stockouts hurt their shopping experience and 37% say that they will shop with another brand when stockouts occur. 

Stockouts are often a result of poor inventory management or supply chain disruptions. Data-driven processes and automation help anticipate demand, allowing retailers to adjust their orders accordingly, reducing the likelihood of stockouts. 

Maintain Customer Trust

At the heart of any effective retail supply chain strategy is the customer, and customer trust is a cornerstone of a successful retail business. When shoppers can rely on a retailer's store or brand to have what they want when they want it, trust is fostered. On the flip side, supply chain management failures and stockouts can lead customers to seek out competitors, eroding trust and loyalty. 

By consistently meeting customer expectations through effective supply chain management, retailers can build and maintain trust. This trust can translate into customer loyalty and repeat business, creating a significant competitive advantage. 

Win Out Against Your Competitors

In the cutthroat world of retail, a well-managed supply chain can be a powerful differentiator. It enables retailers to reduce costs, optimize inventory, and provide superior service, ultimately gaining an edge over their competitors. 

Retailers that master supply chain management can offer competitive prices, faster delivery, and a broader product range. This not only attracts new customers but also retains existing ones, ensuring sustained profitability. 

How to Improve Your Retail Supply Chain Management

Research predicts that by 2027, the market share of retail supply chain management will cross the $37 billion threshold. The retail industry has witnessed unprecedented disruptions in recent years, from the pandemic to geopolitical challenges and labor struggles. To thrive in such an environment, retailers must adapt and embrace technology-driven solutions for supply chain management. We’ve covered some of this in-depth before, so if you’re interested in learning more about the benefits of supply chain management software, check out this informative article.

For now, let’s look at how you can improve your retail supply chain management. 

1. Don't Wait for a Retail Supply Chain Crisis, Plan Accordingly

Unforeseen factors, like the pandemic, have laid bare the vulnerabilities in retail supply chains. The convenience model built on same-day and fast deliveries creates immense pressure on the supply chain, particularly in times of crisis. Global supply chains that rely on international components were severely impacted, highlighting the need for resilience  and adaptability. According to Gartner research, investment in supply chain agility is a priority for 96%  of retailers. 

Retailers must develop contingency plans, diversify suppliers, and optimize inventory management to withstand disruptions. The ability to pivot and adapt to changing circumstances is paramount. 

2. Use Real-Time Data in Your Supply Chain Management for Retail

The retail supply chain operates on a fine balance. Small delays or issues at any point can cause significant disruptions downstream. Real-time data management is critical for ensuring that data flows smoothly from source systems, such as Enterprise Resource Planning (ERP), to supplier systems. 

Real-time data allows for proactive decision-making. For instance, when an order is triggered, recipients should be informed immediately, enabling them to prepare at their warehouse promptly. This reduces lead times and enhances supply chain efficiency. 

3. Utilize AI/ML Solutions to Improve Retail Supply Chain Processes

It's essential to acknowledge the practical challenges associated with traditional ERP and ECM systems in retail supply chain management. These systems often require constant employee supervision, making it difficult to efficiently process extensive amounts of data. However, in the retail sector, AI-powered solutions have emerged as valuable tools, offering substantial benefits. Why? 

• These systems free up human resources for more strategic business activities, promoting efficiency and accuracy.
• AI-driven solutions are designed to leverage historical data for intelligent learning mechanisms.
• This technology excels at automatically identifying and directing documents to the appropriate departments. 

This not only saves time but also reduces the risk of human error and ensures a swift response in the event of supply chain disruptions. 

Data capture is a critical component of these AI solutions, enabling seamless extraction of data from documents and integration into the necessary systems. Algorithms play a vital role in this process, rigorously verifying the accuracy of extracted information, including critical details like GLN or bank account numbers. 

Additionally, intelligent text analysis takes context and location within the document into account, allowing for the recognition of similar or duplicate values. When needed, these systems can even suggest the correct value, accompanied by a probability of correctness. 

Anomaly detection is another valuable retail supply chain management feature, particularly significant for avoiding disruptions throughout the retail supply chain. This feature can identify deviations from the norm and atypical situations. 

For instance, it can verify that the amount on an invoice from a specific supplier aligns with the predicted value. It can also monitor the number of documents expected based on regular cooperation, providing early warnings of any anomalies in the data, signifying potential unexpected events. 

4. Implement Strategic Integrations Between Customers & Vendors

In the retail context, the primary function of the supply chain is to ensure the seamless delivery, sharing, and exchange of goods. This underscores the critical need for consistent collaboration with various stakeholders. Effective information exchange and continual data updates between these parties are pivotal for success within the retail supply chain. 

Navigating the challenges presented by fluctuating costs and dynamic demand projections is no small feat. To address these challenges, retailers and vendors must establish strategic partnerships. 

One prime example of this collaboration is e-VMI (e-Vendor Managed Inventory). 

VMI fosters strong, strategic relationships between vendors and retailers. Vendors are entrusted with managing a customer's inventory, gaining direct access to inventory data, and having the autonomy to initiate orders as needed. By sharing data on available stocks and their respective locations, retailers empower suppliers to deliver the right products to the right stores at precisely the right times. This symbiotic relationship results in a mutually beneficial scenario: retailers maintain well-stocked shelves while suppliers maximize their sales. 

This approach significantly enhances the agility of the retail supply chain, rendering it especially responsive to unique events such as special promotions or seasonal shifts when the movement of goods reaches its peak. Furthermore, involving suppliers in procurement policies and granting them greater autonomy reduces the volume of orders, eliminates the need for last-minute requests, and curtails returns resulting from product replacements. VMI elevates vendor data analytics, benefiting the entire business. 

As suppliers gain a deeper understanding of customer needs, they evolve into better partners. This enhanced partnership, driven by data transparency, leads to more efficient order policy management with reduced costs. In a retail environment that prioritizes streamlined operations, this approach offers a practical solution for both retailers and suppliers. 

5. Leverage Data to Build Alerts and Trends (Predict the Future)

To mitigate supply chain disruptions in the retail sector, a proficient handling of current and historical data is essential. Extensive data records, covering vendor details, orders, deliveries, and dates, serve as a potent tool. When wielded effectively, this tool not only forecasts future occurrences but also reduces the risk of disruptions in supplier collaborations.

Strategic data utilization enhances visibility across retail's key domains, encompassing demand, inventory, capacity, supply, and financial aspects. Electronic Data Interchange (EDI) is integral to data exchange. Implementing data tracking tools enables a comprehensive assessment of partner vendor performance.

This heightened visibility facilitates the estimation of average shipping times, real-time order feedback, anticipation of potential delays, and insights into the average duration of order preparation and shipping. Armed with this data, businesses can conduct supplier audits and maintain a contingency plan with backup suppliers to address potential contingencies.

Moreover, these insights extend to vendor management solutions, establishing a robust supplier community. This approach, with buyer empowerment, provides a clear distinction between key suppliers and those potentially underperforming within the retail supply chain.

This data-centric approach is pivotal in retail, enabling businesses to proactively manage supply chain relationships and make informed decisions to safeguard against disruptions. 

What's the Future of Supply Chain Management in Retail?

The future of retail supply chain management promises to be even more data-driven, transparent, and automated. Some of the key trends include:

Eliminating Data Silos

• Break down data silos for integrated data from various sources.
• Enable a holistic view of the supply chain.
• Support data-driven decision-making. 

Real-Time Data Processing and Transparency

• Implement real-time data processing for immediate insights.
• Enhance transparency for swift action in response to changing circumstances. 

Further AI/ML Learning, Automation, and Prediction

• Continue to leverage AI and ML for advanced automation.
• Enhance predictive analytics to reduce the likelihood of disruptions. 

Wrap-Up

Retail supply chain management is the backbone of the retail industry, ensuring that products reach customers efficiently and on time. It's crucial for managing inventory costs, avoiding stockouts, maintaining customer trust, and gaining a competitive edge. By embracing technology, real-time data, AI/ML solutions, and strategic integrations, retailers can navigate the challenges of the modern retail landscape and build resilient, efficient supply chains that will serve them well into the future. 

Want to digitize your supply chain? Download our whitepaper and start streamlining!