Between product and material shortages, soaring shipping costs and ongoing inflation, retailers are currently battling a number of supply chain challenges that may cripple their profitability, and overall business, if left unchecked. Indeed, recent research from Brightpearl suggests that more than a quarter of retailers (26%) may be just four weeks from going bust due to these supply chain issues.
Particularly as retail businesses continue to build towards the retail peak quarter, in the run-up to Christmas, it is crucial that retailers can weather current and future supply chain disruption. This is to ensure they remain able to service customer demand and maintain profitability during an extremely important trading period.
Let’s take a closer look at why increasing supply chains’ capacity for resilience and recovery, particularly considering continuing geopolitical disruption, is now critical for retailers’ survival as we approach the annual Golden Quarter.
Examining an increasingly turbulent landscape
While geopolitical changes affecting supply chains are certainly nothing new, there is little doubt that the past few years have brought disruption at a virtually unprecedented level. Significant challenges with shipping costs and availability, soaring inflation, product shortages and changes in route to market – such as the continued growth of eCommerce – have turned the supply chain landscape upside down, making supply increasingly difficult for the industry.
Looking forward, it is highly unlikely that market conditions will stabilise any time soon, with a number of factors likely to significantly impact both retailers supply chains, and their customers’ ability to spend.
For example, looking through a consumer lens, the growing cost of living crisis and skyrocketing inflation is highly likely to affect demand, which will naturally have a knock-on effect on supply and required stock levels. On the supply side, potential oil and gas shortages, the prospect of further lockdowns in key territories such as China, and potential Chinese action against Taiwan, are also likely to substantially impact retail supply networks over the coming months.
The tumultuous events of recent years, with the major supply disruption of 2020 a particularly notable example, will have already given many businesses reason to consider the resilience and flexibility of their supply networks, and to take appropriate action to strengthen in this area. However, this will need to be taken further given ongoing market challenges, with businesses needing to invest in their capability to review and plan contingencies for a range of eventualities.
Diversification will be the solution of choice for many
In line with evolving challenges and instability, retail businesses need to consider how best to improve the resilience and flexibility of their supply chains and, through this, improve their capability to weather evolving headwinds. In particular, retailers need end-to-end visibility of their supply chain, in order to understand evolving risks and emerging pain points and, from there, take appropriate action.
Reshoring, referring to when a business brings some or all of its supply chain back to its home country from abroad, is also often highlighted as a means to improve resilience. However, businesses, particularly SMEs which can often be more agile than their larger counterparts, are increasingly recognising the need for diversification. According to a survey conducted in July 2022, around four in 10 SMEs have already switched at least one of their suppliers, specifically citing resilience as a key motivator behind this move.
In terms of how this diversification might look, retailers that carry and sell own-brand products, and therefore have more power to select specific sources of supply, may explore alternative supply sources, different countries or even continents, varying suppliers, or making alternate products available for sale.
Another consideration affecting retailers’ actions will be that their approach to risk assessment and subsequent mitigation measures will need to vary according to the vertical sector they occupy within the retail industry, such as grocery, fashion or specialist retail brands. Because of this, while diversification is likely to benefit virtually many retail supply chains from a resilience standpoint, retailers must consider the sector to which they belong, and the brands they carry, when considering alternative options for supply.
Preparation is key
As market turbulence shows few signs of abating, we are highly likely to see the trend of geopolitical instability continue in the months to come. Given this, it is clear that retail businesses cannot simply react to events as they come, but rather create contingency plans well in advance.
By planning ahead and investing in their ability to weather disruption through measures such as diversifying their supplier network, and reshoring their operations where appropriate, retailers can future-proof their operations and ensure they are well-placed to not just survive, but thrive, no matter what the coming months may bring.
Phil Reuben, executive director of leading supply chain and logistics consultancy SCALA
