The Retail Technology Supply Chain: Three Lessons on Building Resilience
Combine the continual disruption of today’s retail ecosystem with an omnichannel world undergoing a pandemic push, and it is clear that technology Original Equipment Manufacturers (OEMs) must do business differently to build a more resilient retail supply chain. The once tried-and-true tactics aren’t enough to meet the demands of today and tomorrow.
From artificial intelligence (AI) and warehouse automation to autonomous robots and more, retail technology is already redefining the shopping experience. As interest in emerging shopping models evolve, so must the foundational technology. But this evolution can’t be possible without a resilient retail technology supply chain.
1. Supply Chain Risk Mitigation Must Start with Design
As the pandemic hit, toilet paper wasn’t the only commodity in shortage. Nearly every commodity that’s not readily visible to the public — semiconductors, steel, resin and more — also went through these demand surges. The ability to manage those component shortages and the pressure on the entire supply chain topped the priority list. In fact, 87% of retail OEMs were impacted by component shortages, limited materials or other sourcing issues in the past year, according to a supply chain resilience survey sponsored by Jabil. Download the full survey report.
The lesson here is that supply chain risk mitigation needs to start in the design phase. As you’re trying to deliver a solution, you can’t rush it into manufacturing with a single-source design and then try to solve the supply chain problems after it is in production.
Some product designs are based on a core architectural solution provided by a single supplier, which is a technical decision made up front. When done this way, your product has a single point of failure in the design. It’s critical you work with the supplier of those critical components and have a really strong planning and supply agreement with your vendors. These agreements should include provisions on buffer stock and other inventory management and holding expectations to ensure you always have a supply network for your core components.
For everything else that’s not part of that core architecture — the noncore technology components — you should strive to have a flexible specification that allows for multiple sources. That is the only way to mitigate risk and drive a more robust part supply strategy. Just a single weak link in the supply chain operations can take the whole thing down, even if it is for a small screw or connector. Don’t let a 50-cent part prevent you from shipping a million-dollar system. This is critical for retail supply chain management, as sourcing issues are expected to last beyond the pandemic.
What is Supply Chain Resilience?
2. Leverage Localization Where Possible and Practical
In general, throughout the early part of this century, there has been a drive to move manufacturing to the lowest-cost region, without consideration for logistics cost or the total cost of managing operations around the globe. Now, OEMs are realizing that localization of the supply chain can help drive the total cost of ownership (TCO) down through lower logistics cost and quicker supply chain response time.
Rather than driving the lowest component price, it is critical to evaluate the landed cost, including the cost of working capital and of indirect management of the supply chain process, and to leverage local supplies as part of the resilience strategy. Here’s why:
While borders are slowly opening to travelers and business, logistics became incredibly difficult to manage during the pandemic. With limited options and capacity, supply chain logistics and transportation experienced a gridlock. Between logistics constraints and sourcing issues, 64% of retail technology OEMs saw delays in their production delivery or time-to-market.
Nearly every supply chain team within retail tech OEMs had to make changes to their logistics to manage ongoing issues. While 42% had to quickly identify new options for international shipping, 41% investigated or implemented transportation management system technologies. But the issues weren’t only in international or domestic shipping. Retail technology OEMs also experienced issues with last-mile deliveries, with 37% affirming they had to identify additional options to manage these responsibilities. Nearly six in 10 retail technology OEMs invested in supply chain network optimization applications to support their localization efforts, according to the Jabil survey.
Localization where possible and practical is an excellent mitigation strategy to help keep the supply chain short and simple. It also keeps the supply chain more manageable in the long run.
3. Managing Scalability During Unexpected Demand Shifts
The supply chain impact of COVID-19 has been unparalleled across every industry. If emerging shopping models like buy online pick up in store (BOPIS), home delivery and other e-commerce methods were on the distant horizon for retailers pre-pandemic, COVID-19 jabbed the fast-forward button for consumer demand and kept it pressed.
Motivated by social distance protocols, shoppers took to the Internet to order nearly everything. Suddenly, technologies that were in the works earned center stage billing and were expected to perform seamlessly, leaving retailers and technology OEMs scrambling to meet demand. In fact, 43% of retail tech OEMs said increased demand is impacting their company’s supply chain.
Well-established OEMs can be very hands-on with their supply chain, collaborating with a mix of contract manufacturers, VARs and integrators across the value chain. But as technology progresses, the differentiation of all these players seems to get blurrier. That’s why many OEMs look for more turn-key partners that can help manage a solution or the retail technology supply chain end-to-end.
There are lessons for retail technology startups as well. With the increase in opportunities in the retail market, we have seen many startups proposing some brilliant technology with the potential to change the world. However, it is critical that startups expand their business model to consider how to scale when demand increases.
A young company that has created a successful demo product with a local manufacturing shop may struggle when large orders come in and they need to scale their manufacturing capacity. Aligning with a partner who can help them scale needs to be a part of their business plan and model. This helps them manage the demand and gives them a better reputation and viability as they seek to engage with new customers and new investors in a tough and competitive market.
What’s Ahead for the Retail Supply Chain?
The retail crystal ball is not perfectly clear, but recent trends do reveal some possible outcomes. For example, the retail industry should expect digitalization of the supply chain. Just as a customer can order a new hat and see the shipping progress from order procurement through fulfillment to their doorstep, so too can supply chain visibility be made more transparent. The sourcing process and supply chain management process should become more automated and user-friendly.
Add to this clarity the development of technologies such as AI and virtualization, and tracking and traceability capabilities emerge. Front of store technologies such as UPC codes and RFID tags help to manage front of store for the retailer. Revolutionizing the supply chain is possible a level further with these technologies, even down to an individual product within shipments. A day when every component on the supply chain is accounted for? It’s not only possible; it’s likely.
Managing the retail technology supply chain from sourcing to delivery requires an immense focus on resilience. The key for OEMs is really finding a partner that can be more than a vendor or supplier of inventory. The partner needs to understand the OEM, its business model and its end markets — with the ultimate goal being to provide flexible solutions to close the gaps in the OEM’s capabilities. That way, the OEM can focus on their customer-facing business without diverting a lot of resources and energy into managing the upstream supply chain challenges.
It’s an exciting time to be in retail. Smart innovation from the get-go means new, streamlined solutions with a larger focus on research and development. After all, challenges and opportunities that seemed on the back burner in 2019 now loom fully visible in the 2021 retail marketplace. These changes don’t just trickle down to the supply chain strategy; they begin there, where the handling of sourcing dictates the global supply chain’s overall strength and resiliency.
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