Chris Irish, head of supply chain insight at IGD, identifies three challenges that retail supply chains are tackling in the face of COVID-19 and what they can do to mitigate these difficulties. This article first appeared in ESM Issue 3 2020.
The impact the Coronavirus (COVID-19) outbreak has had on supply chains is unprecedented, with retailers and manufacturers around the world dealing with a sudden sharp increase in demand for goods.
Generally speaking, retailers are highly effective at dealing with significant changes in trade when given time to plan. However, time is a luxury that the current situation has not afforded, and this is reflected in what’s being seen at the shelf edge with many products out of stock.
1. Product Availability
When availability begins to decline, we sometimes see adjacent products – or any product with available stock – experiencing heightened demand. The products that consumers are purchasing in bulk include long-life packaged goods: pasta, tinned goods, household cleaners, hand sanitisers, baby products and toilet paper. These tend to be products that follow consistent demand and are less likely to be underpinned by highly responsive manufacturing. Toilet paper is perhaps an exception, but it has a different set of dynamics.
While the products and volumes being purchased are at exceptionally high levels compared with normal standards, how people are choosing to shop has shifted, too. As tighter restrictions have been introduced, retailers with online operations are seeing huge spikes in orders.
What Retailers Can Do
• Communicate: The most important thing that a retailer can do is to communicate with its suppliers to understand where problems may arise and what high-level mitigation plans are in place. A clear view of what factories plan to produce, when orders can be placed and when they will arrive is needed.
• Keep it high level: There is little value in attempting to understand issues at product level – how key suppliers are coping and category-level summaries are going to be important. Communicate to decision-makers, so accurate messages are cascaded, including to stores.
• Be flexible: Explore the levers that you have available to reduce friction, and support out-of-process ways of working. These may include relaxing requirements on minimum code life on packaged goods. These are usually long – up to 50% of the total product life. Products not usually ranged or tertiary brands on a ‘when it’s gone, it’s gone’ basis can also fill gaps.
• Explore all options: Think about how orders for key products get from the supplier, which may be overseas, to the retailer’s distribution centre. Accompanied loads require drivers to cross borders, whereas unaccompanied loads, where containers move between transport modes along a route, may present an alternative opportunity to get goods into market.
• Protect key products: Limit bulk-buying where possible. We have seen retailers introduce restrictions on certain products in store and online.
2. Goods-In, Order Assembly And Goods-Out
Significant and sudden increases in demand cause problems for retail distribution networks. For planned events, a retailer would normally attempt to ‘smooth’ the volume of stock coming into the network, pre-empting demand and pulling supplier orders forward to prevent a scenario where more orders are placed than there are goods-in slots available.
At the heart of DC operations, larger-than-normal store orders increase pressure on pickers. As with goods-in, there is a maximum number of cases that can be picked on any given day. Getting goods out of facilities and into stores may now take longer, with the requirement for more vehicles to deal with larger orders.
What Retailers Can Do
• Micromanage supplier orders: A clear view of the products that shoppers most value at this moment in time is vital. Micromanaging supplier orders and prioritising delivery slots for the most important loads is fundamental.
• Re-stream where possible: Retailers can work with suppliers to re-stream products into networks or sites under less stress. Currently, this is likely to be the fresh-food network.
• Delay orders: Work with suppliers to decide on whether to delay replenishment of lower-priority products to create the necessary room to support products with higher demand, assuming that the stock is available.
• Look for efficiencies: The delivery of sought-after products on off-fixture displays (OFDs) or shrouded pallets will help suppliers, distribution, and store teams. These are easy to pick, often move through a parallel distribution network, are easily replenished and remain on sale longer. Another option is to pallet-pick.
• Scenario plan: Be conscious of how future scenarios may develop and impact demand for different groups of products.
3. Systems Management
Retail supply chain systems are highly automated. Ordinarily, shifts in sales patterns are captured by store ordering systems, with future forecasts and orders updated. This is best practice for business as usual.
However, this is not business as usual, and retailers are seeing much more significant, unpredictable and widespread changes in trade. This will affect forecast accuracy.
While we cannot know how long the current situation will last, these changes are temporary – they are not expected to continue beyond the end of the COVID-19 outbreak. In this scenario, sales forecasts should not update without intervention.
What Retailers Can Do
• Be hands-on: Now is the time for ‘hands-on’ interventions. Given the situation, ordering systems cannot be left to their own devices. Preventing sales forecasts from updating means continuous monitoring is necessary, and retailers should prioritise resource to support this activity.
• Intervene where necessary: Central teams may need to smooth order volumes, removing non-critical demand, which is not needed to cover expected sales, and right-sizing orders to match DC picking capacity. While this is comparably manual, it ensures that all stores can be serviced with the capacity available.
• Take control: Decide which products you will allow to move ‘freely’ through the supply chain, and which need to be ‘allocated’ to stores in fixed quantities, to ensure a fair share. First come, first served is unlikely to be the right approach.
• Demand smooth: Push stock of low-risk products ahead of anticipated demand to create space for later. This may not be suitable right now, but it is a proven method of managing order volumes where capacity is limited.
• Review promotions: Assess the impact of promotions on the current situation, as many promotional products may not be those currently experiencing high demand. Reducing associated uplifts of products on promotion would free up much-needed distribution capacity.
For further insights on the COVID-19 outbreak, visit www.igd.com/covid-19
© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Chris Irish. Click subscribe to sign up to ESM: The European Supermarket Magazine.