The last couple of years have seen major supply chain disruptions around the globe and it looks like these challenges will continue throughout the 2021 holiday season. While some have pinned the blame on the Coronavirus disease (COVID-19), it’s more appropriate to say that COVID-19 simply exposed the somewhat fragile nature of global supply chains in every industry, from electronics to shoes. Port congestion is high. Labor availability is low. It may be cliché, but global supply chains are experiencing the “perfect storm.”
Successful businesses and the people who run them are creative. In time, supply chains will bounce back. Adjustments and tweaks will be made. New businesses will be created. And the smooth flow of raw materials, finished goods, containers, trucks, ships and packages will resume. Supply chain professionals will work in partnership with key stakeholders to mitigate risk and create a more robust supply chain. But it will take time.
The question is not whether global supply chains will regain their health for this Q4 holiday season; the question is how do supply chain professionals minimize disruptions, take short-term compensating actions and communicate clear expectations to key stakeholders including customers, vendors/suppliers, supply chain operations, sales and executive management.
Let’s start with assortment. Work in close partnership with your manufacturers, vendors and suppliers to develop an assortment strategy. You’ll likely need to reduce your assortment because of upstream shortages in raw materials, components, assemblies and labor. What are your strategic markets? Are there new products customers are eagerly awaiting? Which goods have the highest margin? You will want to consider the likelihood of receiving the slimmed-down assortment and adjust your approach accordingly.
Can the manufacturer meet your demand? Can they more efficiently produce a narrower assortment? Understand the trade-offs and make an informed decision. Offer a new item, but if the probability of it being available is low, you might be better served by going with an existing product, one that may not be as “exciting,” but one that has a higher probability of making it into the consumer’s hands on time for the holidays.
It’s a similar approach that is used in risk analysis using a risk priority number (RPN). An RPN looks at the impact/severity of an event in conjunction with the likelihood of its occurrence. The severity of a meteor hitting a major city is high, but the likelihood of its occurrence is low. An RPN takes both of these into account. In a similar way, you should look at slimming down your assortment based on the impact to your customers and the likelihood of being able to successfully get it to them this holiday season.
Second, increase communication. More than ever, it’s critically important to get up close and personal with vendors, figuratively speaking. Get to know their challenges. What are their bottlenecks? What is their raw material situation? How robust is their labor? Dig in. In addition to formal monthly/quarterly business reviews, add informal check-ins. Communicate with them on the phone, via video conferences and email. And, do it frequently. Recognize these are not only unprecedented times for you; they’re unprecedented times for your vendors too. Don’t be afraid to talk with them. Pick up the phone and call or schedule time. Ask them for an honest assessment of their upstream supply chain. Getting honest, objective feedback may be tough. Give them permission to be transparent. It will not help if they don’t feel they can be truthful. Hopefully, you have relationships built on trust that enable honest dialogue as it’s more critical than ever in setting clear expectations with key stakeholders downstream. Also, ask vendors what information, data and help they need from you. The more accurate and timely information they have from you, the better they’ll be able to service your account. Maintain closer than normal communication with vendors for the foreseeable future.
Third, develop a more in-depth understanding of bottlenecks in your supply chains. Understand port status if importing goods. What is the backlog? How long are the delays? Is there congestion at transportation hubs or terminals that you use? Inbound is arguably more difficult in today’s constrained world than the flow of outbound goods. Talk with vendors and transportation partners about what they’re seeing (both static snapshot and future trends). A sort center that is current today can be backed up next week. It’s imperative to maintain frequent communication to have accurate information when making decisions and considering options.
Fourth, investigate local options for goods and materials. It’s worth an updated cost/benefit analysis (to include risk mitigation) for items that are available closer to home. Reducing the number of transportation pinch-points will increase supply chain health. Sourcing locally or regionally available goods, packaging materials or components can reduce lead times and decrease the risk of getting “stuck” somewhere along the supply chain. Cost will always be a factor in the analysis, but today more than ever, reliability and timeliness of supply are strategically important factors in having product available for the holiday season.
There is no simple solution to turn around the health of global supply chains. But, by narrowing your assortment, increasing communication with key stakeholders, digging into supply chain bottlenecks and sourcing locally, you will set yourself up to have a great, if constrained, holiday season. These actions will allow you to set realistic expectations with customers, provide updates to key internal executives and update inventory receipt plans at stores, warehouses and fulfillment centers. Don’t be afraid to be transparent in your communication. Increase the depth and frequency of vendor/supplier communication. Nothing you learn will change supply chains overnight. But, by taking a few straightforward actions, you can mitigate risk, meet customer expectations and avoid surprises this holiday season.