Strategies for Managing Variations in Retail Demand in Supply Chains
In today’s dynamic retail industry, effectively managing variations in demand is essential for supply chains to maintain efficiency and profitability. The ever-changing consumer preferences, seasonal fluctuations, and unpredictable market trends pose significant challenges for retailers. In this blog post, we will explore strategies that can help businesses manage variations in retail demand within their supply chains, enabling them to remain agile and meet customer expectations.
Understanding Retail Demand
Retail demand in supply chains refers to the specific product and goods requirements from customers within the retail sector. It involves understanding and managing the fluctuations and patterns of customer demand to optimize supply chain operations.
The integration of multiple sales channels, such as physical stores, online platforms, and mobile applications, has transformed the landscape of retail demand. Customers now expect seamless experiences across these channels, making supply chain management more complex.
Recent disruptions, including those caused by the pandemic and global supply chain challenges, have emphasized the need for resilient supply chains. Retailers are now focusing on diversifying sourcing strategies, developing contingency plans, and implementing risk management strategies to mitigate the impact of future disruptions on retail demand.
See the Full Strategy
To build resilience, it is crucial to understand the unique conditions and challenges present in different links of the supply chain. Let’s explore some key areas:
- Middle mile
Retailers are facing notable cost escalations and capacity limitations in the middle mile of the supply chain. The surge in retail imports and peak produce shipments has led to high spot and contract rates for transportation services. Scarce availability of refrigerated (reefer) capacity further disrupts the supply chain, resulting in a significant rejection rate of contracted rates.
Multiple factors contribute to increased costs in warehousing. Historically low vacancy levels and high absorption rates have caused a rise in rents, affecting overall operational expenses. Understanding the local market dynamics and rent trends becomes essential in managing warehousing costs effectively. [Reference]
- Last mile
The growth of e-commerce has led to a substantial increase in direct-to-consumer shipments in the last mile. Residential business-to-consumer (B2C) deliveries have seen significant growth, while business-to-business (B2B) volumes have remained stagnant. Parcel integrators have adapted their strategies to prioritize B2C operations, making necessary adjustments to pricing and service levels. [Reference]
Strategies for Managing Variations in Retail Demand
To navigate these challenges and manage variations in retail demand effectively, retailers can employ the following strategies:
- Establishing a Digital Control Tower
Maintaining comprehensive visibility across the entire supply chain is crucial. Retailers should invest in a digital control tower to swiftly identify issues and facilitate collaboration among various functions. Integrating disparate data systems and ensuring seamless tracking and governance will enable proactive problem-solving.
- Optimizing and Prioritizing Purchase Orders
To ensure the timely availability of critical inventory, retailers should optimize and prioritize purchase-order flows based on transportation modes. Giving priority to key orders, such as floor-set and peak-season orders, by front-loading them can improve supply chain responsiveness. Exploring alternative transport modes, even if associated with higher costs, can also be considered.
- Mitigating Risk through Supplier Fragmentation
Avoiding over-reliance on a single supplier is essential to minimize risk. Diversifying the supplier base helps mitigate capacity constraints at the individual supplier level and provides opportunities to enhance capacity as demand fluctuates. This approach should be tailored to each stage of the supply chain.
- Maximizing Operational Efficiency
Prioritizing operational performance optimization and effectively utilizing existing capacity at each stage of the supply chain can help mitigate constraints in the short term. Retailers should reassess priorities and adjust calculations accordingly, particularly in the middle mile where capacity limitations have disrupted transportation planning.
Embedding Resilience for the Future
The challenges that currently destabilize supply chains are projected to extend beyond the upcoming holiday season. While taking decisive short-term actions is crucial for maintaining supply continuity and establishing a foundation for future flexibility, it is essential to strengthen supply chains against ongoing disruptions through a comprehensive approach that integrates resilience and its enabling capabilities for the long term.
To achieve this objective, retailers need to go beyond reevaluating their network design and strategic supplier partnerships. They should also assess their operating models and make well-considered investments in technology and analytics. These measures will enhance their ability to adapt and respond to future challenges effectively.
Collaborating across functions is vital in transforming purchasing and planning behaviors. Retailers must develop long-term strategies that foster coordination in purchasing, optimize product assortment, and minimize delivery disruptions. Considerations such as streamlining timelines and planning processes have a direct impact on freight availability and rates. By submitting orders earlier, retailers increase the likelihood of order acceptance and improve overall supply chain performance.
For more information, visit Gyan Consulting.