Retail ‘winners’ have clear eye on supply chain woes, survey says

Retail ‘winners’ have clear eye on supply chain woes, survey says

Retailers cited inventory visibility as a problem area that automation and modeling could help resolve. Photo credit: Shutterstock.com.

Retailers with above-average sales growth have a clearer sense of their supply chain inadequacies and the way in which automation software might resolve those issues than their low-performing peers, according to a study released this week.

“The Case For An AI-Enabled Retail Supply Chain,” a study of 82 retailers conducted in February and March by Retail Systems Research (RSR) and commissioned by the supply chain modeling software provider LLamasoft, found that 73 percent of retailers with annual sales growth of higher than 4.5 percent said they could add supply chain capacity when market conditions demand it, compared with only 35 percent of those with lower growth.

With the COVID-19 pandemic wreaking havoc on consumer demand patterns and supply chain operations, this kind of agility has become even more important, according to Brian Kilcourse, managing partner at RSR and a co-author of the study.

“Retailers are in a new ‘never normal’ environment,” Kilcourse said in a statement. “With such unpredictability, the ability to be agile and model potential outcomes becomes even more important.”

Kilcourse said that includes the need to incorporate predictive models around labor and transportation costs, and finding optimal distribution center-to-customer locations to lower costs while still satisfying rapidly changing customer needs.

“AI isn’t even the future anymore; it is already here,” he said. 

Using a baseline of retail store/channel annual sales growth of 4.5 percent — with respondents seeing higher growth classified as “winners,” those with lower sales growth dubbed “laggards,” and those at 4.5 percent sales considered “average” — the study found 56 percent of “winners” retailers use technology to model contingency plans for severe supply chain interruptions, while 31 percent of “average” or “laggard” retailers do the same.

Freight transportation a sizable problem

Sixty-one percent of all respondents said freight transportation inefficiencies were a “moderate to large” problem. Interestingly, 36 percent of winners and only 14 percent of laggards cited this as an issue, suggesting that high-performing companies have a more acute sense of their freight transportation shortfalls than their lower-performing peers, the study authors noted.

Fifty-seven percent of all respondents said a lack of visibility into inventory was either “somewhat of a problem” or a “big problem,” while 68 percent said a lack of timely information on global disruptions being pushed to their transportation systems was problematic to some degree.

The study was designed to underline the degree to which supply chain modeling, disruption monitoring, and demand-sensing software built using machine learning- and artificial intelligence-based algorithms could help retailers respond to rapid shifts in demand and consumption. 

That was further highlighted by the finding that 53 percent of high-performing retailers were seeing an increase in direct-to-consumer sales, compared with 27 percent of laggards, while 49 percent of winners said they were able to incorporate the impact of supply chain inefficiencies into the price of their products, compared with 24 percent of laggards.

The authors predicted that “the current winners in retail are prepared to overachieve once more” following the COVID-19 crisis, because they had established a foundation to better sense demand and enable their supply chains to respond accordingly.

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.