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How the Supply Chain Stole Christmas

supply chain
The rush to start Christmas shopping came much earlier this year. Many consumers started working on their family and friends Christmas lists in early September to ensure they not only get the presents before they sell out, but that they also arrive on time. Why, you may ask? We’re experiencing a supply chain crisis on a global scale. While consumers may have found a temporary workaround by shopping earlier, items will eventually run out of stock, causing both consumers and retailers blood pressure to rise. By prioritizing the availability of core products at primary locations and properly balancing margins with customer satisfaction, retailers can avoid being left with coal in their stockings.

Though there isn’t a one-size-fits all solution to this problem, retailers can go with a tactical approach and work with what they’ve got to ensure both their company and their customers have a holly, jolly Christmas.

Why are we experiencing a global supply chain crisis?

While it may come as no surprise, we primarily have COVID-19 to blame for the current global supply chain crisis. The problem is not to do with a lack of supplies, but rather, a lack of resources.

Plant shutdowns, port closures, and labor shortages within distribution facilities and the transportation industry have all contributed to the bottleneck around getting products from point A to point B. Likewise, due to the lack of resources, the cost of shipping goods has skyrocketed. According to Forbes, if it used to cost $3,000 to ship a container from southern China to the west coast of the USA, it would now cost $20,000 or more. That’s a hefty price that not many retailers can swallow.

So, how do retailers get around this problem?

Expensive solutions for the supply chain crisis

When there’s a will, there’s a way, and in this case it involves a whole lot of money and resources. We understand that this is not a feasible solution for most, but wanted to point out the obvious options on how retailers can get around the supply chain issue.

1. Pay extra for shipping, no matter the hefty cost. (As high as a 567% increase, according to Forbes*)

  • Fly your products in, instead of relying on a cargo ship. Sure, a plane cannot hold the same amount of cargo as a ship, but it can guarantee your essentials will arrive on time.
  • Ship to local ports. Rather than shipping to a major port and freighting products to your facilities, pay to get them shipped to a closer port city.

2. Hire workers with an incentive (both on the supply chain side and in-store)

Offer new-hires incentives like bonus promises, scholarships, and paid time off benefits.

3. Hold your inventory

If your inventory is arriving late, hold any products that will still be relevant for next season or sell it off to a markdown retailer.

Practical solutions for the supply chain crisis

If you’re like most retailers, you don’t have a massive budget to get around this supply chain crisis. Though it may feel like you’re doomed, there are still tactical ways to make it on Santa’s (and your customers) nice list.

1. Plan around what you have

Realistically, the products you have now are the products you have to work with for the rest of the holiday season. It’s critical to identify your core competencies that distinguish you from your competitors and use them to your advantage now. While this sounds simple enough, there are a few considerations that go into this:
  • Get smarter with your data. Use recent historical data to identify which specific items sell the most while considering attributes like size, color, or flavor.
  • Master your sales channels. Use ads to guide consumers to the store for predictable or plentiful items and rely on e-commerce to sidestep allocation / assortment difficulties.
  • Depth vs Breadth. Broad inventories will likely be picked over, resulting in wasted inventory. The focus this year should be on having depth of primary products.

2. Focus on margins

Business as usual will no longer suffice. Rather than planning, retailers are now reacting to new patterns of consumer behavior. In order to survive this holiday season, retailers must decide what is more important – maximizing margins or customer satisfaction?
  • Flexible promotions. To avoid running through supply, retailers can utilize shorter promotion periods, lower discounts, ‘buy today, get a discount tomorrow’, or more general deals. Aggressive discounts can be used to quickly move volume as needed. Remember, if they can’t find deals at your store, they will go somewhere else.
  • Know where to compromise. Decide what items are crucial to your business and brand to ensure they are in stock, whether you pay extra for shipping or keep prices low.
  • Specialize. Forgo some of your nice-to-have items and focus on stocking your core competencies. This can also apply to bulk ordering key items and optimizing orders.

3. Keep your customers happy

At the end of the day, a happy customer is a happy business. Though your customer may feel the pressure of completing their wish list in this climate, there are ways to ease the tension:
  • Provide a longer return policy. Due to consumers shopping early, a lot of the 30 day return windows will expire long before Christmas day. Spread some holiday cheer and offer a longer return policy that extends through the holidays.
  • Invest in targeted promotions. Know your customer like the back of your hand and curate promotions that will grab their attention.
  • Ensure you have the supply if you promote it (unless it’s clearance/closeout sale). This may seem obvious, but make sure your promotions are only concerning products you have a lot of. There is nothing worse than going to a store for a promotion and it being out of stock.
  • Be ok with losing the margin on key products. You may have to discount some items that you usually wouldn’t to make your customers happy!

Conclusion

The state of the supply chain has caused massive problems for retailers. While some have continued with a profit maximizing strategy, it’s likely in their best interest to use some tactical strategies to ensure customers return in the Spring. With a limited supply, retailers must get crafty with their allocation, prioritize their core competencies, and shift their promotional goals from volume sales to customer loyalty

Whether you’re a large retailer, or mom and pop shop, the tips we offered above can be used to ease some of the holiday pains. Despite all of these holiday complications, the words of Dr. Suess rings truer than ever, that “Christmas doesn’t come from a store, maybe Christmas means a little bit more”.

Footnotes

* If you are interested in learning more about the 567% increase in shipping costs, check out the Forbes article: Dear Santa, You Better Watch Out: Christmas Starts Now.

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About Cognira

Cognira is the leading artificial intelligence solutions provider for retailers. Cognira is passionate about helping retailers unlock valuable, transformative business insights from their data.

 

We know retail. We love data.

 

To learn more, check out our website at cognira.com or contact us today to get started. 

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