The acronym VUCA was first coined in 1987 to describe the post-Cold war world; volatile, uncertain, complex and ambiguous. Now, it’s shorthand for the ‘new normal’ of today, where macroeconomic tumult, Covid, global materials shortages and continuing supply chain issues are placing retailers under extraordinary pressure.
The International Monetary Fund (IMF) predicts global supply chain problems will continue for years. As a result, established retail supply chain models, which have served for decades, have had to be rewritten, with uncertainty and disruption continuing to cause frequent replanning, rebalancing, and inefficiencies.
For decades, retailers have relied on lean, fast and low-cost ‘just in time models’. However, the events of the last two years have seen many retailers shift from demand-driven to supply-driven models, a ‘just in case’ system enabling agile responses when disruption occurs. In fact, our recent research unveiled that most UK businesses (84%) seek to instigate a ‘just in case’ model to overcome future supply chain crises.
While this model provides stock security in the face of disaster, it also requires excess production or purchasing of stock to create a buffer, so there is always stock available if needed. While such a buffer protects against uncertainty, it can prove much more costly. The reality is that retailers must make the difficult decision to pass these increased supply chain costs down to their customers. When consumers are dealing with excessive inflation and a cost-of-living crisis, this is a risky strategy and one that has served a blow to consumer confidence and spending.
While retailers must respond to supply chain disruption with new models, it must not be to the detriment of the consumer’s wallet. This is possible, but it requires organisations to quickly embrace a data-driven, ecosystem approach anchored in agility.
Agility meets predictability
We know the power of agility to drive resiliency. It has proven to be a differentiating advantage in times of turbulence; according to McKinsey, ‘companies that invented early during the last financial crisis continued to outperform their peers for at least a decade’. However, agility goes beyond mere responsiveness. It is about seeking ways to chart the course ahead with as much information as possible.
Retail thrives on predictability, and the only way to plot a path through supply chain uncertainty is with an agile strategy powered by insight and foresight. This means retailers must have access to real-time understanding of activity in complex supply networks to enable continuous scenario planning.
Harnessing end-to-end visibility across the extended supply chain enables an agile approach where data-on-demand levels and supply chain status feed into dynamic stock-keeping. Artificial intelligence plays a transformative role in this shift, allowing organisations to forecast, simulate and optimise aspects of the supply chain such as container shipping, inventory and human resource. Understanding risk and building supply chain resiliency also means that the increase in cost will not be handed down to the consumer.
Delivering essential products to 5bn customers amid global volatility
P&G is a strong example of a retail giant that has successfully implemented such data-driven inventory planning to reduce safety stock without compromising the customer experience.
Serving nearly 5 billion customers in over 18 countries, the company needed to anticipate peaks in worldwide demand by carrying enough stock to provide customers with the products they wanted when they wanted them. But too much safety stock resulted in high inventory costs. To manage that without risking stock-outs, the company deployed an efficient, accurate and flexible global tool to support a more precise and more frequent inventory safety stock management work process.
Using this technology, P&G was able to make swift decisions based on complex calculations and insight provided by the technology, synchronising the supply network during high volatility.
Retail organisations of all sizes can benefit from such solutions as many are still reliant on outdated stock tools. Excel sheets cannot cope with changing and complex pricing and profitability scenarios, let alone work with complex supply chain data to deliver predictive insights on what might be in the horizon!
Today’s supply chain technology uses an ecosystem approach to build resilience by connecting buyers and suppliers via business networks by dynamically sharing information to improve forecasting, identify risks, and avoid supply disruptions. With such platforms, it is possible to integrate and improve business processes for faster, more efficient transactions and hind and onboard new sources of supply quickly and efficiently.
Next-generation connected value chain planning
This technology-empowered approach to agile supply strategy is all part of connected value chain planning. As PwC describes, it is an approach “characterised by end-to-end digitisation of both processes and physical assets, the new digital supply chain has been enabled by reliable internet connectivity, big data and emerging technologies like artificial intelligence and intelligent sensors. The result is the onset of a modern industrial revolution—and the business implications are profound.”
Our research shows that 70% of UK businesses plan to adopt modern technology to help overcome supply chain challenges in the next 1-2 years; the benefits are clear.
Retailers need not be held hostage by today’s volatile, uncertain, complex and ambiguous landscape. From unpredictable demand to operational complexity, cost pressures, and a volatile macroeconomic climate, digital, data-driven technologies are a vital foundation for resilient supply chain strategies in retail and beyond.
