The impact the COVID-19 outbreak is having is unprecedented, with retailers and manufacturers around the world dealing with a sudden sharp increase in demand for goods.
We know retailers are highly effective at dealing with significant changes in trade when given time to plan. However, time is a luxury the current situation has not afforded, and this is reflected in what’s being seen at the shelf edge.
We have identified that there are three interdependent challenges retail supply chains are currently tackling. They are:
- Product availability
- Goods-in, order assembly and goods-out
- Systems management
In this piece, I detail the circumstances and explore actions retailers may consider to mitigate issues and to help maximise availability in the days and weeks to come.
When availability begins to decline, we sometimes see adjacent products – or any product with available stock – experiencing heightened demand.
The products consumers are reported to be purchasing in bulk include long-life, packaged goods – pasta, tinned goods, household cleaners, hand sanitizers, baby products and toilet paper. These tend to be “stable base” products with consistent demand profiles; they are sometimes not underpinned by highly responsive manufacturing. Toilet paper is perhaps an exception, but has a different set of dynamics, with transport and storage being the key concerns rather than speed of the manufacture.
While the products and volumes being purchased are abnormal compared with normal standards, how people are choosing to shop has shifted, too. As tighter restrictions have been introduced, retailers with online operations are seeing exceptional spikes in orders.
What retailers can do
- Communicate: the most important thing a retailer can do is to communicate with its suppliers to understand where problems may arise and what high-level mitigation plans are in place. A clear view of what factories plan to produce, when orders can be placed and when they will arrive is needed. Getting this right is so important because it allows the distribution network to utilise finite capacity to maximum effect.
- Keep it high-level: there is little value in attempting to root cause issues at the product level; how key suppliers are coping and category-level summaries are going to be important. Communicate to decision makers so accurate messages are cascaded, including to stores.
- Be flexible: explore the levers you have available to reduce friction and support out-of-process ways of working. These may include relaxing requirements on minimum code life on packaged goods. These are usually long – up to 50% of the total product life. Un-ranged products or tertiary brands on a “when it’s gone, it’s gone” basis can also fill gaps. Temporarily relaxing agreements to minimum order quantities will add another layer of flexibility when trying to build optimised loads.
- Explore all options: think about how orders for key products get from the supplier, which may be overseas, to the retailer distribution centre (DC). Accompanied loads require drivers to cross borders, whereas unaccompanied loads, where containers move between transport modes along a route, may present an alternative opportunity to get goods from source into market.
- Protect key products: limit bulk buying where possible. This is hard to enforce in the physical retail space, although we have seen retailers move to limit purchases on product areas in store. This can be achieved relatively easily in the online environment, where restrictions can be coded in.
Goods-in, order assembly and goods-out
Significant unforeseen increases in demand cause problems for retail distribution networks. For planned events, a retailer would normally attempt to “smooth” the volume of stock coming into the network, pre-empting demand and pulling supplier orders forward to prevent a scenario where more orders are placed than there are goods-in slots available.
At the heart of DC operations, larger than normal store orders increase pressure on pickers. As with goods-in, there is a physical maximum number of cases that can be picked on any given day.
Getting goods out of the facilities and into stores may now take longer, with the requirement for more vehicles to deal with larger orders.
What retailers can do
- Micro-manage supplier orders: a clear view of the products that shoppers most value at this moment in time is vital. Micro-managing supplier orders and prioritising delivery slots for the most important loads is fundamental. Doing so ensures finite goods-in capacity is utilised to best effect.
- Re-stream where possible: work with suppliers to re-stream products into networks or sites under less stress. Currently, this is likely to be the fresh food network.
- Delay orders: work with suppliers to decide on whether to delay replenishment of lower priority products to create the necessary room to support problem areas (assuming the stock is available).
- Look for efficiencies: the delivery of sought-after products on off-fixture displays (OFDs) or shrouded pallets will help suppliers, distribution and store teams. These are easy to pick, often move through a parallel distribution network, are easily replenished and remain on sale longer. Another option is to pallet-pick.
- Scenario plan: be conscious of how future scenarios may develop and impact demand for different groups of products. For example, where restrictions on bars and pubs come into force, how might this impact the beers, wines and spirits category?
Retail supply chain systems are highly automated. Ordinarily, shifts in sales patterns are captured by store ordering systems, with future forecasts and orders updated. This is best practice for “business as usual”. However, this is not business as usual, and retailers are seeing much more significant, unpredictable and widespread changes in trade. This will affect the accuracy of forecasts.
While we cannot know how long the current situation will persist, these changes are temporary – they are not expected to continue beyond the end of the COVID-19 outbreak. In this scenario, sales forecasts should not update without intervention.
What retailers can do
- Be hands-on: now is the time for “hands-on” interventions. Given the situation, ordering systems cannot be left to their own devices. Preventing sales forecasts from updating means continuous monitoring is necessary. Prioritise resource to support.
- Intervene where necessary: central teams may need to smooth order volumes, removing non-critical demand – that which is not needed to cover expected sales – and right-sizing orders to match DC picking capacity. While this is comparably manual, it ensures the whole retail estate can be serviced with the capacity available.
- Take control: make a decision on which products you will allow to move “freely”, and which need to be “allocated” to ensure a fair share. First come, first served is unlikely to be the right approach.
- Demand smooth: push stock of low-risk products ahead of anticipated demand to create space for later. This may not be suitable right now but is a proven method of managing order volumes where capacity is limited.
- Review promotions: assess the impact of promotions on the current situation. While many promotional products may not be those currently experiencing issues, reducing associated uplifts above base will free up distribution capacity.
The current situation is testing retail supply chains to their limit. Success will require collaboration, responsiveness, flexibility and communication between retailers and suppliers to ensure that stock continues to reach shelves for customers. To support this, IGD will provide insight for businesses dealing with the COVID-19 outbreak. In the meantime, visit IGD’s COVID-19 hub for more resources.