Call it “revenge shopping” or just pent‑up demand, everything was lining up nicely for retailers to make good after what was, for many, a bad period. Consumers are anxious to buy, the in-store experience has retained its allure, and the imposed restraint on consumers has left many with substantial savings to spend. But while demand is certainly there, supply isn’t always.
“2020 was a walk in the park compared to what we’re going to see,” said Bill Thayer, cofounder and co-CEO of Fillogic, a logistics service platform for retailers, in an interview with LPM. “People are still ordering online, but now they’re going to stores, too — and now everyone is trying to make it work.”
Thayer likens disruption in the supply chain to a tsunami, created by the pandemic and the cascade of bottlenecks in the supply chain it caused, and made bigger by the explosion in online shopping and the complications to distribution it created. “Now, your expectation is for 34 percent growth in e-commerce for 2021 compared to 2020,” he said. “Well, now your tsunami just got even bigger.”
Like when a tsunami hits, Thayer said it’s unrealistic to expect a quick return to normal. “Post-tsunami is the clean-up, and that’s what people are trying to figure out now,” he said. “Inventory can’t get on containers, containers can’t get on boats, boats can’t get in ports, and, if you do, there are no chassis to move containers once you get there.”
The summer saw a multitude of problems, as supply chain issues continue to cause delays in product shipments from manufacturers, resulting in low inventories at some retailers. Department of Commerce data shows U.S. orders for durable goods are strong but making good on those has been tough. Shipments aren’t only slow, they’re more unpredictable. Importers report that instead of a few orders a week arriving as expected, a period of nothing will be followed by ten containers showing up at once.
In May, the Port of Los Angeles saw more than one million cargo containers, more than any port in the western hemisphere has ever seen. The record volume of cargo reflects the resilience of the US consumer, but it has overwhelmed ports, truck drivers, warehouses, and railroads. Ships can sit for days waiting to get into ports, and it may take weeks for containers to be offloaded to start their move toward their final destinations.
Reduced capacity and consumer demand have sent shipping prices soaring. The Freightos Baltic Index, the leading international freight rate index, shows daily shipping rates from China to US ports on the West Coast have skyrocketed 400 percent since the start of last year. Federal Reserve Chair Jerome Powell said “bottleneck effects” have been larger than anticipated and has contributed to the central bank raising its inflation forecast.
It’s being felt downstream. Atlas Games, a retailer in Duluth, Minnesota, bet big on a new tabletop game called “Dice Miner,” placing an order last December for a 40-foot cargo container full of the games from Shanghai. It arrived, but in six months instead of six weeks, and at a cost of $12,000 — more than 50 percent over budget. Profiled in an NPR piece in June, the founder of Atlas Games put it simply: “It’s just a mess.”
Inventory has recently started to move more freely, and there are signals that things will normalize, but it’s unlikely to be as fast as anyone hopes. Some analysts are predicting early 2022, but Thayer thinks that’s wishful thinking. “Everyone is all turned around, and it will not level off until late 2022 or 2023,” he said. “All the tea leaves we see indicate a much bigger problem.”
Thayer said the problem isn’t limited to availability, with supply chain disruption often adding layers of touches to product shipments. And, with more touches, there is more theft opportunity. “Porch pirates are just the most visible, but there are a multitude of touches in an e-commerce package before last mile,” he explained. “Anything you can do to reduce the number of touches makes a big difference.”
Obstacles remain to realizing what many likely hoped would be a holiday season of unprecedented profitability. Some challenges can’t get solved overnight, like the fact that long-haul drivers are getting older every year while fewer are graduating training to replace them. “Everyone is being hugely impacted by the transportation piece,” noted Thomas O’Conner, senior director for global supply chain at Gartner, a global research and advisory firm.
The pandemic’s persistence given the fast‑spreading Delta variant is also a clear and growing problem. A surge in cases in a major port city in China have created a backlog at ports that are vital links in the supply chain and have added to concerns about product delays around the holidays. Maersk is among shippers that have already warned customers of delays, changes in routes, and higher fees.
“Many people are seeing sales being pretty strong but for those of us that are looking to source product from the other side of the world, we all know the problems of transportation and logistics — just getting containers at this moment in time is incredibly difficult — it’s going to put real pressure on supply chains,” said Colin Browne, chief operations officer for Under Armour, in a presentation at the NRF Converge conference. “We’ve got concerns about COVID cases breaking in Southeast Asia. … We could see a major bump in sales and at the same time see challenges around supply. So, I think it’s going to be an interesting holiday season.”
“It’s going to be a holiday season like no other,” added Deborah Weinswig, CEO and founder of Coresight Research, which focuses on the intersection of data and technology in retail. “Between the challenges in terms of inputs, the 5.5 percent fewer truckers that have graduated, and challenges around DC capacity, it’s a confluence of events.”
In anticipation of strong demand and shortages and congestion as the holidays draw near, Hasbro’s CEO Brian Goldner said his company reconfigured its plans. It started importing toys as early as June and July.
But challenges won’t stop when the holidays are over, warned Thayer. Retailers will need to continue to look for answers as supply chain changes persist into next year. “Buckle up,” he said. “It’s going to be a bumpy one.”
Current Supply Chain Trends
Were you to create a word cloud from supply chain presentations at the recent NRF Converge conference, the font for “agility” might be the largest.
In speaking about the 1,000 new stores that Dollar General plans to roll out, Tony Zuazo, president for global supply chain, said his function feels the pressure to accommodate it. “We feel we have to be agile every day in how we address that business growth and all the opportunity that comes to us.”
The sentiment was echoed by Colin Yankee, chief supply chain officer for Tractor Supply Company, who said agility for them is focused on building options into their supply chain that they can effectively use as needed to best service their customers.
Planning is the foundation, both agreed. “The vast amount of agility in the supply chain is built during that merchandise flow planning process,” said Yankee. “You can’t wish it into existence when you need it. You can’t execute your way out of design problems.”
Planning needs to happen across ecosystems, they said, encompassing internal and external partners, and must account for the peaks and constraints of both. Dollar General uses an analysis center of excellence to act quickly on what data analytics are telling them.
Yankee said they look at five basic things to factor in agility:
- First, they think about their network design and operating models. “We assess what kind of product-flow options we have with multi-sourcing.”
- Then, within sourcing decisions, “how much is long‑lead time import, how much is shorter lead time domestic or locally sourced product, and how do we want that mix?”
- Next, is the availability of logistic assets, vendor capabilities, and other 3PL partners “that we can leverage when we need that agility.”
- They also think about their capacity for where they can position inventory.
- Lastly, they examine constraints in the supply chain at each of the four points above and then plan against them.
“With those five elements, we can build in speed and responsiveness to the growth we’re having,” Yankee said. “We plan that up front, so we can apply it later.”
Technology, systems, and processes are key drivers of agility and optimization in supply chains. AI-driven data, video, and robotic solutions are being used to improve forecasting, inventory management, package lifecycle tracking, and last‑mile delivery. But Zuazo said making agility a reality also hinges on the human element. “The people part of the equation is probably the most important as you look at agility, because you can have the best systems, you can have really good processes, but if you don’t have good folks to execute that and to use the tools, then you’re going to fail.”
Though it’s been challenging, the pandemic has also opened a lot of doors for Dollar General by showing them they can successfully utilize remote work, including virtual onboarding, and according to Zuazo, that’s going to continue to play a role in how they recruit people and where they work from.
“As we look at what we’ve learned in the last year and a half, and at the complexities in the supply chain and the fracture points that exist, agility has to reside up and down the organization, and that could be within a distribution center on a specific function [or across functions],” Zuazo said, noting that it needs to be a core competency of the organization that requires resources and focus. “Ensuring agility is more than a corner-of-the-desk priority,” O’Conner added.
Another supply chain trend is reverse logistics — defined as moving goods at least one step back in the supply chain, such as for proper disposal or redistribution of a product. But can it ever be made efficient or truly environmentally friendly?
It will have to be, according to Under Armour’s Colin Browne. “There is a competitive advantage to figuring it out right. It’s nonnegotiable. You have to figure it out.”
The point was echoed by Sarah Clarke, chief supply chain officer for PVH, whose brands include Tommy Hilfiger and Calvin Klein. She said that as a consumer-driven trend, there is no way to escape it. “There is significant growth in people wanting to reuse, resell, and redesign products, and reverse logistics is at the heart of that.”
A lot of brands are thinking it through, trying to build in circularity as they evolve. How to unlock the revenue is the million-dollar question, however. “It’s front and center to a lot of what we’re doing right now,” said Browne. “I don’t think anyone has quite figured it out yet, but it is becoming a bigger part of the equation.”
Clarke said it’s a complicated endeavor, but that the math gets better as scale grows, and that moving the supply chain closer to the consumer helps. “You have to develop new capabilities and use different solutions smartly. You have to figure out how to be agile utilizing new technology, and piece it together with sustainability, circularity, and regeneration of raw materials. It’s about putting together that puzzle.”
The stakes are significant. “We’ve been working on the ability to understand the consumer to move from big container shiploads to being much more considered in what we’re producing, and to minimize closeouts at end of season,” said Browne. “All the cost of making, and shipping, and holding — it’s a huge jigsaw puzzle. The difference between good and great is who figures it out.” It’s all about creating a menu of solutions these days, Clarke added.
There was even discussion — with so much revenue up for grabs for efficiently managing supply chain challenges — that the field is now bordering on “sexy.” Perhaps a stretch, but there is little doubt that the possibility of reengineering the entire model is making it incredibly dynamic. “It’s a very different world than it was. We were traders, merchants, but to unlock value you can’t be a trader — you have to see how it all joins up,” said Browne. “Companies that really do that well understand that supply chain is the backbone to the organization.”
Forward vs. Backward Facing
Already a significant focus, last-mile issues should take on even more importance in the months ahead. And the need for speed won’t abate, say experts. “No one is going to want to go slower,” said Clarke.
Navigating all these challenges effectively requires knowing your own company’s structure and deciding what makes sense. “Data is so important to scenario planning and for making better decisions,” said Clarke. “I see money in every mile. Every mile you take out or can understand better has value.”
As with retail more generally, the supply chain is becoming more customer-centric, according to Browne. “Putting the consumer at the center of everything focuses your supply chain on how you actually optimize that experience for that consumer.”
This is an important evolution in supply chain strategy, said Browne. “For a long time, supply chain [professionals] were backward facing, always looking how to best optimize costs from the vendor, not really forward thinking about how do you optimize the experience for the consumer and how you drive value out of that shift to the front-end,” he said. “And that’s going to require data, analytics, and information.”
Already there are more active discussions with consumers, to better understand what they want. Is it no-touch packaging? Low‑touch packaging? And what will — and won’t — they pay a premium for?
“Traceability is the name of the game,” added Clarke. Tools like blockchain and RFID provide the platform for meeting burgeoning demands from consumers and regulators to know a product’s origin and for sustainability. This supply chain visibility and information will impact consumers, which in turn will impact the supply chain.
The message from supply chain experts is that the traditional model — to which most brands and retail organizations have adhered — has fractured. Now, what it makes sense to do has become very case-by-case, according to Browne.
Finding Solutions That Fit Each Company’s Needs
In comparing Dollar General to Tractor Supply, Yankee said there are a lot of similarities. They both operate smaller format stores, in more rural locations, and they both must often respond to the same market conditions. But how they should address challenges will necessarily vary because of their unique assortments, vendor base, operating models, and on their end-to-end network and where they’re starting from.
It’s reflected in the varying initiatives retailers have recently announced embarking on to combat supply chain delays and meet customer demands.
Bed Bath & Beyond (BBB), for example, is betting on new, larger distribution centers to overcome supply chain hurdles. The company announced in July it will open distribution centers in Pennsylvania and California in the months ahead — to be operated by Ryder Systems — and plans to build four or five regional distribution centers in the next few years. The new centers will be highly automated to streamline the cumbersome process of moving products from vendors to smaller facilities before delivery to their destination, either stores or customers’ homes. “It’s a critical part of the reinvention of the company to have a supply chain that meets the customer where she is,” COO John Hartmann told Bloomberg, with the hope that its $300 million investment cuts replenishment times at BBB and Buybuy BABY stores from 35 to ten days.
In Michigan, SpartanNash, which operates close to 150 supermarkets, opened a $5.3 million, 55,000-square-foot microfulfillment center to handle the surge orders from its Fast Lane online shopping service, rather than filing orders from grocery shelves. To start, the warehouse will deliver orders three times a day for curbside pickup at ten grocery locations. In addition to freeing up stock space in stores, the company’s CEO told local reporters that it will permit more communication between pickers and customers on preferences from fruit ripeness to product substitutions. “We want to bring that high-touch, high-personal service into our e-commerce as well,” Tony Sarsam told MLive.
Vendors are eagerly trying to meet retailers’ needs for right‑fit solutions, such as Fillogic’s move to take underutilized space in malls and convert it into microdistribution hubs. “Amazon can spend any amount on industrial real estate but building more big facilities is not cost effective for many retailers,” said Thayer. “We provide an opportunity to maximize their existing supply chain without having to make a massive investment.”
Crisis can often be transformative, and it appears that the pandemic continues to have that impact on supply chain management.
“Historically, I think the way we’ve managed our supply chain is we place these large orders, with large vendors, in large parts of the world, and we ship it in large containers, on large ships, to large warehouses, and then we wait for someone to haul it out,” said Browne. That “chunky” or episodic approach needs to be replaced by more of a “flow process” akin to water pipes, with strategically placed spigots or taps, which will depend on the customer. “We may have a lot more ship-from-store, but it will be different for different brands. It all depends entirely on the customer.”
“I love the idea, if you know what customers are going to buy, of being close to where consumers are,” said Clarke. “Having inventory smartly colocated to where consumers can buy it is a win, but you have to get it right or you risk stranding your inventory.”
Planning is key, said Clarke, and while some retailers might be enticed by the idea of micro fulfillment and dark stores, shared distribution centers may make more sense. “You can’t run before you can crawl and walk.”