Retailers Face ‘18-Month Struggle’ As Global Supply Chains Remain Tangled

Retail Inventory

For months, nearly every retailer has bemoaned slower supply chains and a lack of available inventory as terminal closures and bottlenecks at ports continue to frustrate international trade. Last week, for example, a coronavirus outbreak in China led to a partial shutdown at the world’s third-busiest port, and the Ningbo-Zhoushan port has not said when it may fully reopen, even with approximately 85 ships waiting.

At the same time, consumer preferences have been rapidly changing over the last 18 months as eCommerce adoption accelerates. And consumers, in large part because of Amazon, now expect purchases to be delivered within one to two days — if not sooner through buy online, pick up in-store (BOPIS).

Raj Patel, senior director of 3PL industry strategy at supply chain management company Blue Yonder, told PYMNTS that these factors together have changed the way companies do forecasting and planning for supply chains, as historical data is currently not as useful as it once was.

“I know these words are overused, but they definitely need to be more agile and resilient, because we don’t know what the next 18 months are going to hold,” Patel said. “Is the trend going to continue? Is it going to change? What’s going to be the next thing? It’s hard to predict.”

One of the most important things omnichannel and eCommerce companies can do, Patel said, is to ensure that procurement, warehousing and transportation divisions aren’t planning in silos, so that every part of the supply chain is guaranteed to have enough capacity. Retailers also must utilize technologies that can connect with each other and adapt quickly to changes — things that many companies’ legacy systems cannot do.

As Patel told PYMNTS, Blue Yonder has been stressing to clients that they need to “keep changing to stay current,” which means moving these systems to the cloud — a faster, cheaper option that makes updating software much easier.

“If you’re thinking about cloud strategy or about reviewing your tech stack, you’re probably 18 to 24 months behind the curveball,” Patel said. “If you don’t catch up, then you’ll either lose market share or you’ll be sitting on the sidelines watching your competitors take you out of business.”

Under Pressure

Getting ahead of future problems, however, doesn’t solve retailers’ current supply chain issues, which will likely require time, patience and careful planning to overcome. “I would say the next 12 to 18 months is going to be a struggle,” Patel predicted. According to VesselsValue, more than 350 container ships are currently waiting off ports. 

Read more: Supply Chain Concerns Rise As Focus Shifts To Holiday Shopping

Part of the problem, according to Ben Hackett, founder of international trade consultancy Hackett Associates, is that the continuing economic expansion in the U.S. “is putting considerable pressure” on the logistics supply chain, leading to a lack of shipping capacity combined with port congestion for goods from both Asia and Europe.

“Delays are stretching to landside as port terminals struggle with space shortages, and labor challenges are affecting ports, railroads and trucking companies alike,” Hackett said in a statement earlier this month. “This part of the recovery is not a pretty sight.”

To cope, many retailers have abandoned “just-in-time” inventory systems to make sure they have enough products on hand to satisfy demand. Patel told PYMNTS that now is a good time to be an industrial landlord, as “the demand is greater than the supply, so they’re having to pay higher premiums.”

‘Tis the Season 

Though students are barely back at school and many consumers are still focused on backpacks and pencils, Patel said that now is the time to order holiday items online in order to guarantee that they arrive in time. “That’s how long the lead times are,” he said. “We have port congestions where product is sitting at ports in China or Africa or anywhere else … and then getting here and sitting at our ports.”

Patel said it’s likely that a lot of Christmas items are already sitting in warehouses as brands and merchants try to play it safe. “And with that comes financial impact,” he said. “I need extra space if I don’t have it, and then inventory carrying costs, which is pretty huge for companies.”

Related: Retailers Set For Another Unprecedented Holiday Season

Salesforce projected last month that costs across the retail supply chain will increase by $223 billion in the second half of 2021 because of challenges faced by logistics companies, manufacturers and stores.

“Retailers are really starting to get scrappy and trying to get creative, but it’s much more focused on the inbound logistics and getting it to the retailer’s property than last year, where it was the last mile,” said Rob Garf, vice president and general manager of retail at Salesforce.