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AlixPartners | Supply chain headaches are likely to linger longer than a holiday hangover

This holiday season is keeping retailers on their toes. On one hand, the return of somewhat normal operations and expectations that consumers are lighting up the registers are causes for celebration. On the other, getting product on shelves and in customers’ hands has been a slog due to supply chain problems and overburdened postal and delivery services. While you may be forgiven for wanting to quietly nurse your holiday hangover, this is the time to take stock, assess which of the many issues from the final two quarters of the year are following us into 2022, and get ready for what’s coming.

On the face of it, problems such as labor constraints and transportation delays may be temporary and could be expected to ease as the world at large gets back to full functional capacity. But to leave the supply chain mess behind without improving tactics for the future would be a mistake. Also, cost inflation on input factors may be more persistent than initially anticipated. As a result, every retailer making difficult crunch-time decisions right now is facing its own unique set of challenges. The key is to use this opportunity to diagnose and fix structural problems in your business and ensure that heavily relying on air freight and paying a premium does not become a habit. Among the various problems retailers are facing this holiday season are:

Demand spike is not baked into the process: Not much about the last two years has been predictable. But expecting and being ready for disruptions must become part of every business plan. This means aggressively working to true up the forecasting through breaking down silos across teams, embracing speed in decision-making, and accelerating the use of both backward- and forward-looking insights. Through our conversations and work with retailers, we have found that not everyone has taken steps like harnessing predictive analytics or changing their metrics to account for omnichannel operations. At the same time, in a survey of retail executives AlixPartners conducted along with Sourcing Journal, three in four said that when they did make data-driven decisions, it led to concrete and measurable improvements.

Transportation is unpredictable, slow, and often expensive: Retail executives in our survey recognize that shipping and transportation constraints are the top challenge impacting supply chains (Figure 1).

Every retailer should be breaking down all of the different modes and means of transportation that were used this holiday season and determine their upcoming strategy around these. Air shipping has seen a sharp increase, with multiple retailers chartering their own planes. In many cases, this has been a very expensive proposition. Going forward, establish a clear transportation strategy by assessing available alternatives and creating a decision tree around them. Cross-functional teams including merchandising, planning, and sourcing need to work closely together to make these decisions quickly. Retailers must also continue to closely watch the cost per unit and assess rate optimization opportunities.

Raw materials have been in short supply: There is no substitute for closer and more collaborative relationships with your suppliers and factory partners. The concept of establishing mutual trust and a true partnership cannot be overstated. For this to happen, insights must flow in either direction and communication must be transparent and regular. In our survey, about a quarter of the executives said they saw an opportunity to integrate suppliers more, potentially through models such as a joint venture. Retailers are also investing in supply chain technology to better work with vendors and improve partnerships (Figure 2).

There may be hidden opportunities to make the product-to-market process more efficient without extending the end-to-end calendar. There is also a case for expanding to different sourcing countries while keeping supplier counts in each location much tighter.

All of this comes together with better collaboration inside the organization and a nimbler decision-making process. Almost 70% of retail executives told us that they have improved cross-functional collaboration and speed over the last three to nine months. But there are still a lot of opportunities to break down silos further and get ready for the future better prepared. Given the current challenges and changing dynamics, this is a crucial time to develop a detailed understanding of your product cost drivers and identify opportunities to claw back additional investments made this year to meet demand.

Authors:

  • David Bassuk, Managing Director | +1 917 679 8698 | dbassuk@alixpartners.com
  • Joel Bines, Managing Director | +1 214 734 9222 | jbines@alixpartners.com
  • Amol Shah, Managing Director | +1 347 583 7463 | ashah@alixpartners.com

Compliments of AlixPartners – a member of the EACCNY.