Industry View: “Covid Will Speed Up Switch to Digital in Retail Supply Chains”

29th June 2020

Logistics BusinessIndustry View: “Covid Will Speed Up Switch to Digital in Retail Supply Chains”

Covid-19 will accelerate the digital transformation of supply chains in retail, says Ed Bradley (above), director of ecommerce logistics company Virtualstock.

Covid-19 is already proving to be one of those unparalleled, disruptive events that will change the face of many sectors. Retail will be amongst those most impacted and this crisis has pressed the accelerator on the inexorable shift to online. KPMG estimates online retailing could reach 50% of the total goods purchased by 2025, five years earlier than previously anticipated. With physical stores shut during lockdown, online sales became the sole channel for customers, and the only way for retail businesses to generate cash flows.
As with all crises there have already been and will be winners and losers. Those that have invested heavily into their ecommerce and fulfilment processes will have fared well, but there are many that were caught unprepared and underinvested.

Agility to fulfil customer demand
As well as highlighting the importance of e-commerce, Covid-19 has also emphasised the need for retailers to be agile. Lockdown has demonstrated how quickly demand can shift in particular categories. At the outset of lockdown there was a clamour for printers and home office equipment. As time went on this moved to gym and garden equipment. Fashion is now moving back up the priority list as customers begin to think more about life post lockdown. Those retailers unable to respond to customer demand, will have seen customers take their business elsewhere. Amazon has cleaned up where retailers can’t fulfil the need.

Rapid supply chains
This crisis will force retailers to continue investing in their supply chain platforms to ensure they are robust enough to handle any further disruption from Covid-19, but are also agile enough to respond to rapidly changing demand, not to mention the relentless competition from Amazon and other pure play online giants.
Traditional supply chains that rely on manually intensive, slow and laborious processes will not survive. Data is key here and is central to an effective and agile supply chain. It is no longer realistic to collect and manage data from different suppliers. If procurement teams have to manage the supplier’s data, it reduces the number of suppliers a retailer has the capacity to work with.

To compete in this environment, retailers need platforms that can process and provide visibility over huge amounts of rapidly changing data from thousands of suppliers. They also need complete control and full visibility over all product information, approved pricing, inventory levels, order statuses, tracking details and reporting in a central location. By having systems that can track order statuses in real-time, this data can be instantly passed on to the customer, relieving pressures on customer service teams and avoiding unnecessary costs to the retailer. All this will feed straight through to the bottom line with improved fill rates and forecast accuracy, reduced lead times and lower levels of inventory.

Retailers can also mitigate supply chain disruption by having a dropship channel. Dropship allows businesses to source products from a wide variety of suppliers who fulfil the order directly to the customer without having to stock the product in their own warehouse. If certain product ranges are selling out, retailers can turn to a number of different suppliers to avoid losing sales. Dropship can be switched on as a temporary measure to fill a particular breach in product lines, so retailers can continue to sell until their usual suppliers replenish lines.

Dropship also enables retailers to respond to rapid changes in customer demand for new products by reshaping product ranges and pivoting into new categories at pace. Boohoo is a great example of this. During spring the brand typically sells dresses and outdoor clothing. However, with Covid-19 forcing people to sit at home many consumers wanted tracksuits and leisure wear. By effectively using data to see what customers want and were putting in the search terms on their site, Boohoo was able to turn to appropriate brands and dropship suppliers to add product categories on their website that they knew would sell.

In this environment of unprecedented disruption, when every business is meticulously focused on the bottom line, not having to stock product in warehouses can cut significant cost and reduce risk. Products have a life cycle and can quickly become obsolete and inventory that can’t be cleared sitting in a warehouse becomes a liability. With dropship the supplier or local distributor holds the risk.

For cash flow and working capital purposes it is transformative. When the item is delivered to the customer retailers get the cash up front and then they pay the supplier.

In a world of unprecedented disruption, to remain relevant and successful requires evolution and embracing change. The adoption of digital supply chains requires both time and investment but the benefits are essential, particularly for navigating the difficult environment we are in today.