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Supply Chain Management Segmentation Guide

Under significant pressure worldwide, supply chains are facing major challenges. Shipping costs are high, orders are delayed, and brands are losing production time due to global disruptions.

What is the Supply Chain in Retail?

The retail supply chain is the flow of processes involved in the production and distribution of your products. There are multiple scattered components in the supply chain, such as warehousing, inventory management, purchasing, order management, carrier partnerships, and more.

What is Supply Chain Management in Retail?

Supply chain management in retail refers to how to handle the inbound and outbound logistics of goods, from raw materials to the delivery of the final product to the customer. Supply chain managers optimize ancillary activities to reduce costs, deliver products faster, and gain a competitive advantage in the market.

Why is Supply Chain Management in Retail Important?

Managing inventory costs, avoiding stockouts, building customer trust, and gaining a competitive advantage.

Managing Inventory Costs

Inventory costs include any expenses related to ordering and holding inventory. It is one of the largest expenses incurred by retailers: for every dollar a retailer earns in the United States, they have $1.35 worth of inventory on hand.

Proper supply chain management helps reduce inventory costs in the following ways:

  • Improving demand forecasts.
  • Finding the right balance between purchasing, demand, and storage.
  • Optimizing storage costs.
  • Avoiding stockouts and high carrying costs.
  • Eliminating unsold inventory.
  • Simplifying order management.

Avoiding Stockouts

A “stockout” occurs when the inventory for a particular product runs out. Stockouts can happen anywhere along the supply chain, but they significantly affect retailers’ profits since they prevent customers from purchasing desired products. One study found that 30% of consumers feel that stockouts negatively impact their shopping experience.

Stockouts can happen for various reasons, such as:

  • Inventory counting errors.
  • Increased demand.
  • Supplier delays.
  • Lack of financial liquidity.

Regardless of the reason, the customer experience is frustrating when they encounter a stockout. Supply chain management helps address logistical challenges and forecast more accurately so that you can reduce stockouts and achieve higher profits.

Building Customer Trust

As mentioned earlier, good supply chain management means having more products on the shelves and more satisfied customers. If shoppers can find what they want, they are more likely to shop with you in the future. Conversely, 37% of consumers who experience a stockout will shop from another brand, and 9% will not buy anything at all. If you are active in managing your supply chain, you can meet your commitments and be transparent if you cannot, which is critical for providing a great customer experience.

Gaining a Competitive Advantage

Retailers can also use the supply chain to gain a competitive advantage. Effective supply chain management leads to cost savings, and cooperation among supply chain elements leads to increased profits. Planning technology allows small businesses to respond and adapt to disruptions in real-time, often faster than their larger competitors. In this way, they can still meet customer expectations and achieve sales.

Improving Supply Chain Management in Retail

Integrating Retail Systems

Business growth brings an entirely new set of problems that require solutions, especially when it comes to your supply chain. A good supply chain system monitors the entire production process, from raw materials to manufacturing and shipping to customers. The success of your supply chain depends on the integration of your retail systems.

At any given time, you will need to communicate with:

  • Planners.
  • Producers.
  • Distributors.
  • Wholesalers.
  • Customers.
  • Carriers.

When all these players work together, errors are reduced and money is saved. Automation technology allows you to connect all your systems – such as point of sale (POS), inventory management, accounting, customer relationship management, and e-commerce – and streamline operations without human intervention.

Considerations

Reverse Logistics

Reverse logistics is a supply chain tactic that involves moving products from customers back to the seller or manufacturer. It includes processes such as returns or recycling in reverse logistics. Recycling involves labeling returns, inspecting returned items, processing refunds, and shipping new items for exchanges.

The goal of reverse logistics is to recover value from products or dispose of them. Since returns are a necessary evil, and 95% of customers say that a bad return experience makes them less likely to shop with the brand again, reverse logistics is an important process for getting the right outcomes.

Improving Forecast Accuracy

Demand forecasts predict future revenue and the products that shoppers will buy. They also help you make decisions about product offerings and inventory, reduce stockouts, and maintain positive cash flow.

Historical sales play a role in forecasting, but they also take into account factors such as economic trends, customer feedback, and data from your point of sale.

There are two main types of forecasts:

  • Quantitative forecasts: using hard data from your store, including revenue, marketing analytics, and economic indicators.
  • Qualitative forecasts: using expert opinions, market research data, and demand forecasts from customers.

Each has its own methods you can use to determine demand. To find out which of the two methods is best for your store, read how to forecast demand for your retail store (and why you should do it).

Partnering with a Third-Party Logistics Provider

A third-party logistics provider (3PL) is a company that helps merchants manage their supply chains. This includes services such as warehousing, inventory management, order fulfillment, shipping coordination, exchanges, returns, and more.

Rather than managing your own warehouse and distribution, you can store inventory in a 3PL warehouse. When you receive an online order, the 3PL will pick, pack, and ship the order using a carrier like FedEx or UPS or express mail.

Finding the right external fulfillment partner is essential, but not all companies are created equal. You want to find a partner that supports returns, integrates with your programs, and has warehouses close to your customers, all at a reasonable price.

Exploring Innovative Fulfillment Options

Changes in shopping behavior during the pandemic are here to stay. Customers expect some convenience and safety measures. Supply chains are in disarray. All of this requires merchants to fulfill orders in new ways.

Some innovative fulfillment options to explore include:

  • Car pickup, where customers pick up their order without going into the store.
  • Buy online, pick up in store (BOPIS), where customers order the product online and pick it up in-store.
  • Direct shipping, where a third-party supplier fulfills online orders.
  • Local delivery, where online orders are delivered to the customer’s home.

Trends and the Future of Supply Chain in Retail

Local Pickup

Merchants are taking advantage of the current trend of not using a carrier at all. Consumer trends show an increase in shopping with local and independent businesses, and they are happy to receive their goods safely at your store.

There are many benefits to local pickup for merchants. For example, the costly last-mile delivery expense is eliminated, and delivery to the customer is provided at no additional cost.

The Physical Store for Fulfillment

Another way merchants are reducing the impact of supply chain disruptions is through “micro-fulfillment,” or fulfilling orders from a local warehouse or store. Stores are becoming new fulfillment points, leveraging their proximity to customers and lower shipping costs compared to shipping from a distribution center.

Although micro-fulfillment is not a new term, awareness of its importance has increased due to current trends and rising last-mile delivery costs. This also makes it easier for merchants to offer curbside pickup or BOPIS or other local delivery/pickup options.

Increasing

Inventory Reserves

Traditionally, retailers maintain limited inventory due to supply chain efficiency. However, once the pandemic occurred, 60% of companies planned to increase their inventory reserves from May 2020 to 2021 to reduce stockouts and improve poor customer experiences.

Companies are not only increasing their inventory reserves but are also seeking new suppliers and distributors in regional areas instead of relying on international suppliers. Regionalization remains a priority for most companies. Nearly 90% of participants stated they expect to pursue some degree of regionalization over the next three years.

Resale Commerce

Resale commerce refers to the sale of previously used goods through physical and online channels. With 77% of American consumers concerned about the environmental impact of their products, retailers are adjusting their supply chains to enhance sustainability and profits. Resale commerce can be considered mainstream.

The resale market is growing 11 times faster than traditional retail. It is expected to reach a market size of $84 billion by 2030, which is nearly double the size of the fast fashion market.

Retailers like Lululemon and REI have launched resale operations in recent years, and we have seen market growth with platforms like ThredUp and StockX. You can capitalize on this trend by creating a buyback, exchange, or recycling program in your store.

Protecting Supply Chain in Retail

The supply chain is often completely invisible to the end customer, and this is by design. The typical local customer experience is that they choose available products, pay, and then go home. The online shopping experience is similar – shoppers browse a selection of products, pay for what they want, and the goods arrive after a day or two.

In both cases, the customer experience in the supply chain is that everything happens as expected. All the effort you put into ensuring consumer choice, product availability, flexibility, low costs, and fast delivery leads to a swift, satisfying, and easy customer experience.

By using the strategies above, you will be on the right track to building a more resilient supply chain that helps you keep products in stock and boost sales.

Frequently Asked Questions about Supply Chain in Retail

What is an example of a supply chain in retail?

A retail supply chain is the complete process of a product from the time it is manufactured to the time it is purchased by the consumer. An example of a retail supply chain is a store selling a pair of shoes. The retailer orders the shoes from the manufacturer, then the manufacturer ships the shoes to the retailer, then the retailer stores the shoes on the shelves, and finally the consumer purchases the shoes from the retailer.

What are the four types of supply chains?

There are four main types of supply chains:

  • Linear Supply Chains: Consist of one supplier and one customer, where the product is transferred from the supplier to the customer.
  • Multi-Tier Supply Chains: Include supply chains with multiple suppliers and multiple customers, where the product is transferred from the supplier to the customer.
  • Extended Supply Chains: Include supply chains with multiple suppliers, multiple customers, and multiple product flows, where the product is transferred from multiple suppliers to multiple customers.
  • Global Supply Chains: Include supply chains with multiple suppliers, multiple customers, and multiple product flows, where the product is transferred from multiple suppliers to multiple customers worldwide.

What is the role of retail in supply chain management?

Retail plays a vital role in the supply chain management process. Retailers are responsible for connecting producers with end customers. They purchase goods from wholesalers, manufacturers, or distributors and then sell them to customers. Retailers are also responsible for pricing, customer service, and inventory management. They act as a link between producers and customers and ensure proper delivery and collection of products. Retailers also help promote products and services, assisting in increasing product sales.

What

What are the five stages of the supply chain?

The supply chain consists of five stages:

  • Sourcing: The process of acquiring materials, components, and services from subcontractors.
  • Production: The process of transforming raw materials into finished products.
  • Inventory Control: The process of managing and tracking inventory to ensure there is enough product available to meet customer demand.
  • Distribution: The process of delivering goods from the point of production to the customer.
  • Customer Service: The process of providing support to customers and ensuring their satisfaction.

Source: https://www.shopify.com/retail/retail-supply-chain

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