Pain in the Supply Chain

The immediate bumps in the supply chain may be temporary, but lingering issues will force c-store retailers to rethink their strategies

By Melissa Kress

MORE RETAILERS AND consumers are finding an unwelcome sight in stores today: empty shelves, or shelves filled with unfamiliar brands. The reason? A supply chain that continues to face headwinds, which only seem to be holding steady instead of improving as the United States and the world near the second anniversary of the COVID-19 pandemic.

For nearly 24 months, there has been an ongoing level of supply chain disruption on a global scale. More recently, incremental to that, there’s been additional effects from the holidays, weather issues, and some absenteeism around the omicron surge, according to Jess Dankert, vice president of supply chain at the Retail Industry Leaders Association (RILA).

“At this point, retailers have learned to deal with the disruption on a baseline level — the disruption we have been seeing throughout the pandemic. They already have that playbook in place. Some of the shortages we see in pockets now is really due to the acute impact around the holiday, the surge and weather, but those will begin to tail off as we get away from them and retailers have a chance to recover, restock and replenish the shelves,” Dankert said. While the challenges that have popped up since late winter and early spring 2020 have been fueled by the pandemic, the health crisis also shined a spotlight on existing issues.

“Looking back at the early pandemic, you see those outages and you can see the consumer psychology around the need to stock up. But the ongoing level of disruption that we see on a global scale is exacerbating the existing systemic challenges in the supply chain, particularly domestically,” Dankert explained, pointing to outdated port and freight infrastructure across the U.S.

“The pandemic hit and that really shined a light on the need for modernizing the infrastructure, especially in the ports,” she said.

It also shined a light on end-to-end visibility — the data infrastructure piece — and the need to have a better understanding of the supply chain, the movement of goods through the supply chain, and better identify and address bottlenecks when they happen, according to Dankert.

The Domino Effect

Consumer demand has certainly played a role in the challenges retailers have faced keeping their

shelves stocked, but that’s only one piece of a complicated puzzle.

“The factors impacting supply chains begin with the increase in consumer demand throughout the pandemic, blowing past forecasts for raw material production, which has led to an imbalance of ships and the cargo needing transport,” explained Jake Bolling, CEO of Skupos, a data analytics provider to the convenience retail industry. “The issue continues to compound at major ports, where we are seeing legacy regulation impact the ability to quickly unload ships and move cargo.”

Add into the mix a truck shortage, and the ongoing labor shortage that touches each of these areas of the economy, and you have a recipe for struggles on every side of the equation.

“This domino effect has created a challenging environment for convenience retailers. As an example, three-quarters of convenience retailers surveyed by Goldman Sachs recently cited out-of-stocks in the non-alcoholic and alcoholic beverage categories as ‘bad or very bad,’” Bolling cited. “When convenience retailers are unable to keep vital items on the shelves for consumer demand, they see an impact in per-store sales. This challenge impacts all product categories, not just the cooler.”

Less Bottleneck Ahead?

Is there light at the end of the tunnel, temporary challenges aside?

“Temporary is the exact word for the out-of-stocks people are seeing, particularly in grocery and food areas. They are working themselves out now,” Dankert said. “Those goods are in the supply chain and it is just taking time to catch up.”

However, moving past the immediate hiccups, the supply chain will continue to see congestion in the ports, and tight capacity on ocean and domestic truck and rail, according to the RILA executive. In addition, higher-than-pre-pandemic rates and costs will endure.

“I think we can see that congestion continue through 2022,” she pointed out. “The good news is having to deal with the last 20-plus months, retailers and their partners in the supply chain have learned to deal with this and find the workaround to navigate the disruptions that we now think of as normal.”

Case in point: Leading up to the holidays, there was concern about the availability of presents to buy but, in the end, that did not materialize. “The shelves were full and we had a record holiday in retail,” Dankert noted. “That really illustrates that retailers are able to — particularly with a longer runway — plan ahead, move shipments forward, readjust, react to these situations, and still get product to where it needs to go.”

There is concern, however, that once the supply chain rights itself, retailers may face a new problem: too much inventory. Dankert, though, does not see

“The ongoing level of disruption that we see on a global scale is exacerbating the existing systemic challenges in the supply chain, particularly domestically.”

— Jess Dankert, Retail Industry Leaders Association

this as a certainty because there has been an evolution in retailers’ inventory strategies. For years, they were operating on a lean, just-in-time approach to inventory. Now, they are trying to build up inventory.

Retailers are more sophisticated with their inventory strategies today than even five years ago driven by access to new tools such as artificial intelligence and machine learning, allowing them to make smarter decisions around placement and more quickly deploy inventory to where it is needed.

Behind the scenes, retailers from all classes of trade are having conversations involving their distribution centers, store locations and overall network. They’re asking themselves: How are they using all the parts of their network to best execute on getting products to the customer and having the best experience out there? How are they using their stores? Are they becoming more of a distribution point for that digital consumer journey?

While temporary, the exact timing for supply chain improvement is the big unknown. According to Bolling, recent regulatory changes should lessen the impact of port regulation and trucker shortages, but it’s unclear how quickly these changes will move through the supply chain.

In addition, recent job reports from December 2021 send mixed messages about the future labor market, with only 199,000 jobs added during the month (half of what economists had forecasted) despite unemployment dropping to 3.9 percent.

“As many supply chain businesses look to meet demand, labor serves as a large pressure release valve on current supply chain woes. A continuation of these market conditions could make for a challenging 2022 for supply chains,” Bolling said.

Consumer Thinking

At the center of the retailer-supplier equation is the consumer.

While many Americans have changed their shopping behaviors due to the pandemic, they have not changed their shopping expectations. A new global research report commissioned by SOTI, a provider of mobile and IoT device management solutions, found that supply chain frustration is driving consumers to shop online vs. in-store. However, to avoid shipping delays, many U.S. consumers are choosing to buy online and pickup in-store.

According to the From Clicks to Ships: Navigating the Global Supply Chain Crisis 2022 report:

• 72 percent of consumers say they will continue to buy online for either pickup or delivery;

• 54 percent will opt to shop in-store, with purchases either taken or delivered; and

• 59 percent will opt for purchases picked up in-store, whether bought in-store or online.

“Retailers need to find a way to accelerate innovation and implement technology to communicate with consumers and partners, while also taking into consideration the fact that we’re still very much in a state of flux. This places a premium on the need for flexibility and scalability,” said Shash Anand, vice president of product strategy at SOTI.

Necessity & Innovation

Consumers are warming to the idea of delivery, by any method. The SOTI research found that nearly three-quarters of consumers are open to delivery to a designated drop-off point, and nearly 60 percent say they would consider delivery via autonomous vehicles or drones.

“Mobile technology can help the retail supply chain improve communications and customer experiences across the entire consumer journey. However, this requires significant backend infrastructure and mobile tracking to create a seamless experience,” Anand said.

“By investing in mobile technology, brands and retailers can not only diagnose problems quickly and adapt to the evolving retail ecosystem, but also ensure they remain on top of consumer needs, support employees out in the field, and remain profitable,” he continued.

Convenience store retailers are also looking in their existing toolboxes for inspiration. According to Bolling, the channel’s retailers are turning to data to understand how to outfit their square footage with the highest-performing SKUs that they can access.

“Although retailers may be unable to get order fulfillment on the entirety of their planogram, using data to inform switching decisions enables them to maximize sales in what would otherwise be a challenging situation,” he said. “Furthermore, retailers are utilizing technology solutions like self-checkout to combat labor shortages in their locations.” CSN