Retailers that have invested in inventory management tools that supply real-time visibility across channels are faring much better than those that didn’t as tactics like ship from store and curbside or counter pickup are proving to be survival factors, industry experts agreed.
So-called supply chain control towers, end-to-end systems involving a high degree of coordination and real-time data sharing among retailers, suppliers, freight forwarders and carriers, is another investment that’s paying dividends as the movement of goods has become extremely challenged.
And the massive online shift in consumer spending engendered by COVID-19 isn’t likely to give back all its gains from the past couple of months, making those tools all the more critical and informing the next wave of investment decisions.
Inventory Visibility Critical, Investments Paying Off
“Better inventory positioning, allocation and more just-in-time capabilities, these tools are table stakes going forward,” said Steve Osburn, a managing director with Kurt Salmon, part of Accenture Strategy. “Knowing where all your inventory is, and having the ability to quickly shift it around, are now omnichannel basics for every retail business.”
Neil Saunders, a managing director and analyst at GlobalData Retail, said the inventory visibility piece gives retailers much greater flexibility in terms of scaling up store fulfillment now and in the post-COVID world.
“A lot of it is about reducing the last mile, pushing consumers to come to the store to pick up orders either curbside or at the counter, which obviously costs less and is much better in terms of profitability,” Saunders said. “That has lots of implications for how you account for stock levels, your allocation systems and analyzing data by geography. All those things require investment and changes to systems and technology employed.”
Saunders said while large centralized facilities are still a major piece of a company’s fulfillment network, store fulfillment will only increase in importance.
“The idea of relying solely on a warehouse or DC to fulfill online orders is probably something that’s going to become less significant,” he said. “Retailers will rely more on stores for distribution, both to ensure they pull their weight and are financially viable, but also because it’s more cost effective to do it that way, especially in a country like the U.S. with a large geography.”
Another Look at RFID
Another area of investment in critical supply chain visibility, especially as store fulfillment steps up, will be RFID tags, readers and systems, predicted Stephan Schambach, founder of omnichannel retail platform NewStore. A lot of retailers have considered RFID in the past but didn’t pull the trigger due to cost or applicability to their business.
Schambach said historically a 70% store-level inventory accuracy rate has been acceptable, as they can only sell what’s on hand anyway to walk-in customers. But when store pickup or store shipping is turned on, it needs to be a near perfect 99% or above.
“Retailers have been reluctant to adopt RFID, but it’s the only way to get to a precise requirement for omnichannel,” he said. “If you promise an item through ship from store or pickup, you should have it available the same afternoon. You could say, it will take two to three days, that’s very safe but not a great experience. The other option is setting safety stock levels, and removing a SKU’s availability online when it falls below five on the shelf. The problem there is, it goes against the entire idea of omnichannel selling all inventory down to the last available item to avoid markdowns.”
The trick to getting there, Schambach said, is employing serialized inventory using a unique number such as a QR code or near-field communications (NFC) signals. Inventory is received using RFID so retailers know exactly where an item is in the store.
While cost has been a knock on RFID, including the chips themselves, that barrier has come down with the advent of inexpensive printers for stores. International sporting goods retailer Decathalon, for instance, with more than 40,000 SKUs, has store inventory that’s 99% RFID tagged, with some exceptions based on shape and size, Schambach said.
“It not only brings accuracy up, but if a customer goes to another store with a return and doesn’t have a receipt, the tag is scanned,” he said. “Outdoor Voices, for another example, was unsure about RFID. But they piloted it in one store last year with a $2,000 investment and two RFID guns, then rolled it out to other stores.”
Non-Seasonal, Multichannel Businesses Doing Better
Brian Barry, president of fulfillment operations consultancy F. Curtis Barry & Co., said if a company has domestic manufacturing capabilities “it will carry you for a while. But if your raw materials are overseas, the supply chain hasn’t caught up yet. The problem is everyone is going after the same inventory. If you had no preexisting relationships on the outside, you’re in trouble.”
Echoing others, Barry said companies that have been in multichannel or omnichannel mode are doing much better than those that weren’t.
“True brick and mortar was already in trouble, and now it has a death grip on it,” he said. “Big department stores and apparel retailers, they may not get out of this. They’ve missed the spring season, and can they financially survive?”
Some of the types of businesses that are doing well among Barry’s clients are in farm and home and garden supplies, nutritional supplements, beauty products and alcoholic beverages.
“We work with a 3PL whose biggest client is a skincare company” he said. “Their predominant volume was through retail, but now they’re pushing so much more into ecommerce. Total sales are down but ecommerce is up 40%. We’re seeing a big transition. Another is a large beer and wine retailer, with foot traffic down but curbside picking up. There are lots of signs of a shift from bricks and mortar into ecommerce, including home delivery.”
Q4 Disruptions Coming
In terms of the supply chain from overseas, Barry said ocean freight shipments that normally took eight weeks to get to the U.S. are seeing added delays of four weeks or more, causing massive backlogs. “Does that mean you miss your next season?” he asked. “What do you do if you can’t get winter clothes in time? If factories are shut down, and you’re trying to cut POs for Q4, how long will that supply chain be delayed now? You have a shot at getting goods in time, but some businesses will definitely be hurt by that.”
Osburn agreed that Q4 and peak season will likely be disrupted to a degree by the pandemic’s impact on the supply chain, from raw materials to finished goods. “Factory orders could be delayed,” he said. “A lot of peak season inventory is being manufactured or planned now, including ordering raw materials. Some shipments have been delayed, although the ports catch up quickly, and canceled orders mean less volume.”
Retailers that have stood up supply chain control towers over last few years, enabling a much better handle on goods in transit, have been better prepared to react to COVID-19 disruptions.
“That investment is seeing huge dividends as retailers try to figure out where inventory is and where it needs to be to start selling as things start up again,” Osburn said. “But it’s not a packaged solution you just plug in. It’s a complex set of tools for aggregating data from a bunch of areas. For some retailers, it’s been a savior as things start to recover.”