Five Ways Retailers Are Digging out of a Slow Economy

By Doug Kern, Product Marketing Manager, Inovis

It seems that retailers are getting hit from all sides today— an unlikely punching bag getting beaten up by both suppliers and consumers.

Rising fuel costs result in higher supplier prices and transportation expenses. Luke-warm consumer demand is forcing retailers to take a closer look at forecasts and trends. And the continuing credit crunch in financial markets has tightened capital expense investments.

If retailers and suppliers aren’t quick to adjust, the results can be devastating -- just look at the flurry of Chapter 11 notices over the past year.

But like the boxer down on the mat, retailers continue to be resilient in finding ways to get back up and fight again.

And for many retailers, the supply chain is the first and last place to look.

Here are a few ways that retailers are adjusting their supply chains to “get off the mat:”
1. A Dose of Demand-Driven:
In the past, retailers managed a “push” approach to inventory and fulfillment, staging goods at regional warehouses and pushing to stores as needed. But as inventory costs sky-rocket, both retailers and suppliers are taking a “hot potato” approach to inventory management, holding as little as possible to reduce costs, as long as they don’t impact out-of-stocks. To pull off a demand-driven approach, retailers have sharpened their overall time-to-market cycle times, improving visibility to inbound shipments, expanding cross-docking programs and launching vendor-direct delivery.

2. Going Global:
Today, nine out of every 10 retailers source from China, saving costs and gaining access to a wider range of merchandise. But going global brings an increased need for visibility throughout the supply chain, to pinpoint trouble spots and fix them before they disrupt shipments. Going global brings new data requirements, such as “10+2 rule” container data and C-TPAT security data. And global supply chains also bring “more cooks to the kitchen,” as customs brokers, freight forwarders and contract manufacturers play a role in touching shipments and data. To manage global partners, retailers are implementing lifecycle services and tools to automate vendor setup and vendor master data management.

Going global also brings an added dose of risk, requiring supply chains to be more flexible in dealing with added disruptions, delays and disasters. According to AT Kearney, natural disasters across the global have increased 3X since 1960, at 10X the cost.
3. Automating the Supplier Long-Tail:
In rolling economies, it’s easy for retailers to focus only on their largest suppliers -- their core 20% of partners that make up 80% of sales – and ignore the efficiencies of dealing with the bulk of smaller suppliers that make up the long-tail. But in a sluggish economy, every ounce of improvement and cost-cutting counts, and chronic data problems and logistics errors from small suppliers can lead to “death-by-papercuts” as small costs and delays accumulate. The challenge for retailers is how to do-more-with-less, given most have only 4-5 staff members to deal with thousands of suppliers. To solve this “do-more-with-less” challenge, many retailers are automating core supplier management processes, implementing web portals for self-service on-boarding and certification and tying remediation workflow processes to error notifications to get suppliers on track to fix problems.

4. Rethinking Transportation Networks:
With rising fuels costs, retailers are taking a fresh look at how they move goods across their supply chain. Three tactics rise to the top. First, retailers are rationalizing how goods flow overseas from suppliers, trading off speed for lower costs by switching from air freight to ocean freight. Second, distribution network design is getting active again, as retailers optimize where to locate distribution centers in relation to ports, stores and consumers. And third, retailers are taking a closer look at how they combine freight to get the best rates. Logistics managers are consolidating multiple shipments before they reach the port to avoid port congestion issues, and then deconsolidate shipments as they get delivered. Linked with this is an increase in freight audits, making sure freight bills for small orders go to the correct payee, whether that is the retailer or supplier.
5. SaaS, OPEX and CAPEX:
In down economies, it’s normal and necessary for budgets to tighten and projects to be delayed. To continue to achieve their goals, retail supply chain execs are getting creative in how they invest in projects. Lucky for them, software-as-a-service (SaaS) is now a great alternative for deploying supply chain projects, compared to on-site systems. And since SaaS projects are billed as a monthly service and don’t require up-front investments in hardware and software, they draw from operating expense (OPEX) accounts instead of capital expense (CAPEX) accounts that may have dried up in rounds of budget cutting.
The Bottom Line
As economic cycles shift, retailers are making some smart moves and being resilient in using their supply chains to improve performance. And doing so now, in a down economy, means they’ll be ready to rock when the economy rebounds. As a retailer, how are you adjusting to a down economy, and “pulling yourself off the mat” to fight again?


Doug Kern is product marketing manager at Inovis and focuses on retail supply chain solutions. Inovis creates B2B ecommerce software and services, and helps companies around the world do business with their trading partners. Doug frequently haunts blogs.inovis.com and can be reached at doug.kern@inovis.com.

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