Supply Chain Challenges Retailers Face This Christmas Shopping Season

By Erin Allwardt, Principal Solution Designer, LLamasoft

For years, we have seen growth in the digital channel outpace growth in-store. However, the pandemic has placed even more emphasis on online shopping. How will this channel-shift during the busiest shopping season of the year affect and add to the complexity of retail supply chains and how these supply chains adapt? There are five key challenges for retailers to overcome this holiday season.

Insufficient outbound distribution capacity

The first challenge is insufficient capacity in outbound distribution to customers. Many retailers have separate supply chains for store fulfilment and e‑commerce fulfilment. As demand shifts the balance from the former to the latter, the supply chain must adapt. Fulfilling e-commerce orders can be expensive, especially when labour and capacity has been budgeted to include a lower volume than what will be seen this year. Distribution centre handling, individual order picking and packing for parcel shipment, and capacity of parcel shippers will be greatly taxed, whereas movements between DCs and stores will be underutilised.

Reverse logistics

Reverse logistics will be the second challenge. Retailers typically expect returns after the holiday, given many people will receive gifts that they don’t love. And online shopping has always included a higher-than-average return to purchase ratio. But this year, retailers must consider the potential for a spike in returns prior to the holiday and will have to strategise on how to get those returns back into the available stock to be purchased by another customer.

The option to buy multiple sizes and colours of an item to try on at home has become more popular with the e-commerce customer. In this scenario, it’s highly unlikely all items will be kept, and potentially all the items could be returned.

Shifting consumer preferences

A third challenge is rapidly shifting consumer preferences. This could wreak havoc on pre-planned product mix decisions. There will be a continued focus on at-home entertainment and solo exercise options on Christmas shopping lists. Many retailers have not yet caught up on these demands and definitely didn’t anticipate the need for this product mix when doing the planning and sourcing of goods for the 2020 peak season.

Labour requirements

The fourth challenge: Retailers face varying labour requirements as they flex to meet demand changes and introduce new delivery methods. BOPIS (buy online, pick up in-store), home delivery, and e-commerce shipping each require different processes – and require specifically trained personnel. Retailers need to pivot to having fewer in-store sales staff and more back room, DC and delivery support personnel.

Successful promotion and marketing campaigns

Lastly, retailers are challenged by promotion schedules and targeted marketing campaigns that fell short of their goal to move unsold past-season merchandise. No one could have anticipated the dive retail sales would take during the first six months of 2020, and many retailers are hard pressed to entice customers to buy current inventory to make way for the new in-transit inventory. Promotions focussed on moving ageing inventory are coupled with efforts to get customers to start shopping now to reduce the strain on the supply chain leading up to the last few weeks of December.

What can retailers do to face these challenges?

While the immediate goal of retailers is getting through the ’golden quarter’ and back to “normal,” the longer-term goal should be a built-in supply chain resiliency that allows them to adapt to potentially permanent pandemic-driven shifts in consumer behaviour and to an ever-changing retail environment.

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