We recently sat down with Plug & Play and Flexport to talk about the importance of having an agile and responsive digital supply chain when faced with the unexpected. During this panel, we discussed inventory volatility during COVID-19, the implications of unprecedented demand on the supply chain, anticipated changes to consumer behavior and how businesses can prepare for unforeseen disruptions in the future.
Here are our top takeaways:
1. Volatility Is Here to Stay, So Brands Should Prepare for the Long-Term
If there is one thing we know will exist in a post-COVID world, it’s volatility. Right now, volatility is driving significant shifts in consumer demand within retail. The CPG industry is facing increasing demand and inventory shortages for essential goods as a result of COVID-19. On the other hand, the fashion and retail sector is experiencing a decline in demand with discretionary spending currently down by 70%. As INTURN’s CEO, Ronen Lazar, said “consumers are saving as much as they can save,” and consequently, retail businesses are facing billions of dollars worth of excess inventory. Lazar estimates luxury brands in particular could be sitting on as much as $125 billion worth of unsold product as a result of changed consumer spending habits.
Sanne Manders, COO at Flexport, has observed similar changes further upstream. From his perspective, volatility is not only here to stay but will come as a result of COVID-19’s effect on demand, manufacturing and logistics. Manufacturers will feel the effects of this volatility as factory footprints will need to be re-examined and redundancies built in to cope with extreme demand. On the logistics side, transport delays, carrier shortages and contract cancellations will slow down processes and put pressure on delivery times. As Manders explained “on-time performance is under pressure because people will have to source from other countries” which means readjusting logistics to suit different infrastructures.
Volatility is likely to have significant long-term effects on all industries. Lazar explains, “the volatility will come, and it will come hard in the future” even for industries like CPG which is currently experiencing spikes in demand. So, the question then becomes – how can brands prepare for this? The answer starts with digital readiness. With full visibility into inventory and an ability to leverage centralized data to drive proactive decision making about when, where and how to sell excess inventory businesses will be able to protect their bottom lines during volatile periods.
2. Building in Redundancies and Leveraging Technology Are Critical
Since supply-chain disruptions and volatility are here for the foreseeable future, how can businesses prepare themselves for the long-term? From Sanne Manders’ point of view, building redundancy into a supply chain is a key way of coping with volatility. Stock redundancy is particularly important for businesses who decreased replenishment inventory prior to COVID-19, such as retailers in the CPG industry who were found to have made a 25% reduction in the stock they carried prior to this outbreak. Manders stated, “a lot of retailers have gone to a just-in-time supply chain,” however, with demand now accelerating, these just-in-time supply chains are finding it difficult to adapt. Manders also highlighted the importance of redundancy in supply base and having flexibility in carrier options. When China ceased its manufacturing efforts due to COVID-19, brands with responsive supply chains who had other supply base options were better-positioned to withstand disruption.
Proactive planning, such as having redundancy in place, is the key to ensuring brands are prepared for the challenges ahead. Ultimately, the most effective way of enabling proactive thinking is by leveraging responsive technology. As Ronen explains, “it requires a digital solution to quickly react to the volatility.” Lazar elaborates that with the right technology in place, businesses will be able to utilize data from a single source of truth and gain greater visibility over the supply-chain, enabling them to manage excess inventory and resolve issues in real time rather than after the fact.
3. E-commerce infrastructure is more important than ever
E-commerce is booming during this period, with the closing of brick-and-mortar stores. As such, retailers are increasingly relying on digital marketplaces to sell products. Manders stated, “Factory closures in China caused a backlog in purchase orders, but now they have reopened, we’re seeing a lot of goods coming into the country with nowhere to be sold.” In many cases, brands are required to house inventory at ports and in warehouses until stores re-open. This approach presents a risk to those with perishable items or seasonal goods with a short life-cycle. By leveraging E-commerce as an additional channel, brands can continue selling products and recover cash before the inventory becomes obsolete.
The benefits of E-commerce can also be seen in the off-price sector. For the fashion industry in particular, a large reduction in discretionary spending is culminating in high volumes of excess inventory. Unfortunately, a majority of off-price retailers in North America are solely brick-and-mortar and have closed in the wake of COVID-19. In Europe and Asia, however, off-price retailers have been able to continue trading due to having already incorporated E-commerce into their strategy. Even as brick-and-mortar stores re-open, social distancing practices may continue to influence where and how consumers shop. A digital presence will be critical for brands as they look to diversify the ways consumers can purchase their products.
It’s crucial that brands be able to make proactive and responsive decisions to further optimize their supply chain. This comes down to having the right technology in place to centralize data, provide total visibility, and enable real time reactions to sudden disruptions. Technology will also play a crucial role in allowing retailers to keep up with consumers as their spending moves over to digital channels. Digital readiness is ultimately the most important message for retailers during this time, and by leveraging technology, brands will find themselves in a better position to succeed during volatile periods.
Withstanding volatility can be difficult without having the right digital solutions in place.
INTURN is the only enterprise software solution that empowers brands to efficiently sell slow-moving and excess inventory to retailers and recover cash faster.
With INTURN, you have the tools to centralize your data, streamline your workflows and optimize your margins. Interested? Get in touch.