Of all the challenges that have emerged as retail has evolved over the past decade—challenges such as knowing your customerand engaging your employees–trying to keep up with the impact to the supply chain has been the most difficult. You can update your sales forecast pretty quickly as conditions change. But sales is in the middle of a spiderweb and any changes to the forecast radiate outward, affecting inventory and the whole supply chain. This spiderweb has steadily expanded from just your network of bricks and mortar stores; to bricks and mortar plus online; to shop online pick up or return in store; shop in store return online; shop in store and have it shipped, shop on Amazon return to warehouse, shop in store pick up curbside etc.
Then came COVID, turning supply chain management into utter chaos, and making it crystal clear that the only way to manage the complexity and dynamism of the modern retail supply chain is with real time data and analytics.
COVID is an extreme situation, and it has given the central question facing the industry new urgency: How can retailers use data remain flexible and ready to pivot when necessary, in order to meet the customer where they are? That is inevitably a supply chain management question. Here are five things I think retailers need to do:
- Embrace digital. This is one that most retailers have seen coming for years, but many thought they had more time. COVID expedited this movement. Those who were not online quickly moved to get online, to stay in business. Those companies that already had a strong online business pivoted to all online. Some companies even achieved or exceeded their sales plan (though perhaps not their margins). One strategy that worked was using data to optimize inventory across all channels–including using closed stores as mini-distribution centers. Others achieved success by running more online promotions and looking at data to tweak their online messaging.
- Manage cash flow. We have never heard so much conversation around cash flow as when COVID hit. Sales plummeted and inventory was just sitting there. Extreme decisions needed to be made. Picture your spring stuff coming in and your sales cut in half. You can’t carry that into fall. Do you take markdowns? Send goods back? Launch promotions?Sales forecasting and accuracy, alignment of inventory, managing markdowns, and maximizing margins, are very important in determining cash flow. Many companies that executed these processes on a monthly basis had to move to weekly or even daily. You can’t do it that fast manually. It has to be automated.
Data driven tactics to manage cash flow included creating additional promotions from aged inventory; promoting product based on missed sales plans, and quickly adjusting assortments to support changed customer shopping behavior and what manufacturing or distribution had available and then focusing promotions on areas that had in-demand inventory.
- Use external data. How are you using technology to communicate across your supplier chain to manage order fill rates? Using external data from your vendor or supplier partner in your reporting can be very beneficial— data such when product will be available; whether there is a backorder; whether an item is discontinued, etc. You may learn you have to adjust an online offer, or pricing, or update your website based on this information. This data can also help you handle fulfillment across all the different delivery options you offer, without errors, mix ups or time delays. This is so important to customer satisfaction, and it’s now possible to have cross functional sharing of data in one central hub. This is the key to overall success.
- Tighter management of return rates. With the shift to online comes higher return rates—up to 30-40 percent for retailers of apparel. Tracking return rates by product, customer, vendor, style, or category will provide insights into why returns occur, and how they impact overall profitability. Then you can take action.Is product size an issue? Advise customers on your website to size up on a product if many returns are due to product running small. If you see consistent high returns in a specific product due to quality issues, permanently or temporarily remove the product from website and/or assortment and work with production/distribution on improving quality. Use data and insights around what and when product is being returned to optimize labor planning and quality control. We know of retailers who had to shift labor from stores to the returns center in order to keep up with changing customer behavior. Data can also help you decide what to do with returned product. Reticket? Reprice? Send back? All of these have costs associated with them, and analyzing return code data can help you to make the most cost-effective decision.
- Properly allocate shipping fees. Retailers are getting hit with increased shipping fees due to increased online shopping. To remain competitive, in many cases, retailers are absorbing the cost. But the opportunity lies in not pushing these costs directly to the bottom line, but allocating these costs to the appropriate businesses, customers, categories, products. The goal is to be able to see—and achieve–true profitability at any level.
The next generation supply chain
The supply chain of the past was opaque and disconnected. A lot of companies were not leveraging technology. People were acting on disparate sources of information, causing chaos in the business. The ability to get data quickly was not there. External partners not connected into overall demand. Canceling goods or adjusting quantities was a manual process.
Too many retailers are still living in that world to some extent today. COVID should make it clear that you can’t afford to keep living in Excel world thinking that is going to work for your entire organization going forward. Change is happening faster than ever. Customer behavior is changing faster than ever.
The supply chain is so much more complicated and there are so many more data points. But we have the technology to have one central direct data platform where everybody can access shared information to better plan their part of the business. If you know online is up 100% and brick and mortar is closed, your return rate will be higher, and you can prepare for that. There’s opportunity to give partners access to sales forecast and keep them more connected; to be able to look at data daily, and to use external data to react more effectively to things we’ve always been aware of but couldn’t quantify or model—things such as weather; social media sentiment, and catastrophic events such as COVID.
COVID has accelerated our understanding of what the future of retail needs to look like. Life is forever changed. Shopping behavior is forever changed. The retail landscape is forever changed. Let’s not wait for the next extreme situation to adopt technology. Do it now, to support your customers, and your team.
Connie Walsh is Senior Director of Transformation Services at eCapital Advisors. She has extensive retail leadership experience across buying, planning, analytics, and operations. She loves to dive deep on opportunities that exist within companies and empower them to translate their data, using technology, to grow business and increase bottom line profitability.