Optimizing Supply Chain Risk Management to Handle Disruption
Optimizing Supply Chain Risk Management to Handle Disruption

Winning at the Retail Supply Chain Game

David Petrucci, Managing Director Global Leader of Supply Chain and Operations
Carol Raimo, Managing Director Consumer Products and Services Industry Practice Leader

When supply chains unravel, customer experience (CX) can crumble – unless retailers are prepared to respond.

Many retailers today are feeling the pain where it hurts most in the form of fleeting customer loyalty. Persistent global supply chain challenges can trigger CX and customer loyalty downfalls – even for retailers at the helm of omnichannel. While supply chain disruption may be temporary, the damage resulting from customer attrition can be devastating, particularly if longer-term issues are not addressed.

There are three critical supply chain challenges in retail today:

  • Environmental, social and governance (ESG) factors
  • Distribution center networks
  • Inventory management and the returns process

 Prioritize ESG for a healthier supply chain that will appeal to your customers

Retailers that fail to embrace ESG – now – can expect to see shrinking market share. Customers increasingly demand products and supply chains that are mindful of ESG and sustainability throughout the production and delivery lifecycle. Consumers are not only inquiring about product materials but they are also interested in how products are produced. They want to know about various aspects of a company’s environmental and social sustainability in making products, including but not limited to factors such as:

  • Was child labor involved?
  • What are the living conditions within production facilities?
  • Was material transported? If so, how many miles and what is the environmental impact?

Retailers must adopt ESG practices across the supply chain spectrum. It is imperative that retailers are aware of their ESG footprints and that they measure and document their ESG efforts as well. Customers are watching.

A new approach to distribution centers – for quick access, think micro

Traditionally, retailers have leaned on a small number of large-scale warehouses to store their inventory. However, efficient supply chains demand quicker access to product housed locally. Therefore, a greater number of smaller warehouses (micro-warehouses) may be more effective in managing inventory and, by extension, your CX. This structure offers easier access to products without relying on long-distance shipping.

Retailers should ask, “Do I have the right products in the right places at this time? Do we require more or different distribution centers?” For instance, for a retailer that has three large distribution centers dispersed throughout the United States, if one is out of a product, that product would have to be shipped from another, creating a delay of several days or more for the customer. Conversely, smaller distribution centers or warehouses in closer proximity to where products are needed most are a more efficient strategy. Investing in smaller brick and mortar micro-warehouses to avoid extended shipping times can lead to better customer service.

Inventory management: where just in time has become just in case

The golden rule of “larger inventory equals larger costs” still stands. Unfortunately, due to supply chain shortages, many organizations have resorted to building up excess inventory. Building up months of inventory in the name of supply chain management is not productive – and neither is maintaining inventory using a just-in-time strategy. Instead, organizations must find the “Goldilocks Zone” of just-in-case. They should have enough inventory to respond to consumer demand without carrying excess inventory and increased costs.

These three challenges factor significantly into another critical area for retailers: the product return process. Customers have rising expectations and want a seamless experience – not only when making a purchase but also when making a return. At a minimum, today’s customers demand an easy return process. They do not want to wrestle with the how, when and where of making returns. More specifically, they want seamless returns that come with an ESG-friendly return experience – for example, reusable packaging. They want to transact with retailers that have narrow carbon footprints, ethical supply chain sources and a diverse management team.

But supply chain challenges have complicated the product return process. The costs of shipping and tariffs, together with ongoing logistics challenges, have made returns difficult to manage. In fact, rising logistics costs eat so far into margins that some retailers are having consumers keep the products they want to return, while also refunding their money. How can retailers stay afloat while offering returns that provide a better CX? In short, organizations must have an efficient returns process that addresses the increases to the organization’s inventory from such returns as well as where and how to house it – for example, in regional micro-warehouses.

 In closing: Customer experience is born from supply chain management

Customers are demanding more – at a time when retailers are wrestling with multiple supply chain challenges. Savvy retailers understand that CX is everything. To bolster CX, supply chain issues must be addressed to avoid devastating long-term consequences. Retailers that champion ESG, optimize warehousing strategies and manage their inventory in a just-in-case manner will win the supply chain challenge and, just as important, win over their customers.

Interested in learning more? View our on-demand webinar — ESG in the Consumer Goods and Retail Industries: Check Your Supply Chain.

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