The retail supply chain is the one of the busiest supply chains in any industry. They have to constantly innovate to serve the changing needs of customers, shift retail formats, and focus on both price and quality. It is very important that retailers closely monitor the supply chain to ensure that the products are free from defects and are always on the move to ensure a low cycle time. In a global economy, the retail supply chain is affected by country-specific politics, trade and tariff law, international relationships, and quality control. Also, the fact that the retail landscape is experiencing a massive shift in their working model due to the rapid emergence of e-commerce players such as Amazon. The value proposition provided by such e-commerce giant on all three fronts of price, quality, and service has disincentivized people to shop on the store. This phenomenon has complicated the retail supply chain, and retailers are continually looking for ways to optimize their supply chain.
Challenges in retail supply chain
#1 – Tight profit margin
The profit margin in the retail industry is one of the lowest across all sectors as retailers face constant pressure to deliver a razor-thin profit margin. Top executives working in the retail industry are prioritizing increasing profit margins for their operations. However, that remains a herculean task for retailers as the majority of the consumers are highly price sensitive. Additionally, the advent of online shopping has given the consumer a tool to compare prices across various retailers, which makes it impossible for retailers to sell for a higher price. The increasing cost of raw materials, overheads, and operations add to the misery of retailers who are already struggling with a meager profit margin.
#2 – Meeting customer expectations
The modern-day customer is very insistent on getting the best quality goods at the lowest price possible. Availability of goods through multiple channels, customer support, and choice variety has urged the customer to seek more options and variety while making a purchase. The retail supply chain struggles to keep up with varying customer demand as they have to stock more seasonal rages and assortments in order to keep their customer satisfied. Additionally, they have to provide such large variety of goods just-in-time to serve customers scattered across multiple markets and channels.
#3 – Operational inefficiency
Achieving operational efficiency in the retail industry is not an easy task. The retail supply chain lacks visibility across key business departments with silos of information existing across each business units. Companies have to opt for latest ERP systems as traditional spreadsheets just cannot keep pace with the operations function. Running the retail supply chain on static spreadsheets profoundly impacts the operational efficiency and may lead to multiple errors.
#4 – Quality & compliance
Quality in terms of product offering from retailers has changed in the last few years. The quality of a product today is a function of brand name, the point of origin, quality marks, customer feedback, and online reviews. Brands simply cannot claim their product to have certain qualities; they should meet certain criteria to be able to do so. Also, retailers need to comply with rules and policies set by governments and consumer bodies which mandate greater quality standards.
#5 – Omnichannel integration
The traditional brick and mortar store is not the only place where consumers can buy goods. Consumers have multiple channels to choose from, and on average they shop from at least three channels. Logistics and flow of goods from each of these channels will incur the different cost and have a varying delivery schedule. The problem in retail supply chain arises when retailers have to maintain consistency across product offering, quality, and customer experience. This has to be implemented from a strategic viewpoint as retailers have to streamline their inventory management and orders and transform business processes.