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Supply chain innovation takes centre stage as internet retailers maximise profitability

By Ben Balfour, Chief Operating Officer at Advanced Supply Chain Group.

2023 forecasts predicted a bumpy ride for retail. The micro-economic factors that impacted the sector throughout 2022 have persisted, threatening to further dent already squeezed profit margins.

eCommerce retailers continue to battle inflation and its effects, while soaring energy bills and rising interest rates erode disposable income amongst consumers. And, although companies are increasingly optimistic about an uptick in sales during the second half of the year as inflation abates, the outlook remains challenging.

Keen to understand how retailers are prioritising time and investment, as shoppers became increasingly squeezed by rising living costs, we surveyed 100 major retailers nationwide in September 2022.

39% of retailers expect to see a 6-10% drop in sales because of the cost-of-living crisis, while 32% anticipate a reduction of as much as 20%. They floated a range of solutions for reducing operating costs to help manage the impacts of lower sales, with 40% of retailers aiming to make savings by reviewing their supply chain to find efficiencies, while 13% are considering outsourcing more of their supply chain operations.

With consumer confidence still subdued and retailers focused on maximising profitability, we’re now seeing supply chain efficiencies placed firmly under the spotlight. A series of retail trends will intensify this focus.

Supporting retailers’ ESG strategies

More and more brands are measuring and reporting on their Environmental, Social and Governance (ESG) performance, which will continue to gain ground.

The cost-of-living crisis means many consumers have less to spend, which encourages more inquisitive purchasing. Value is even more important, and not just in financial terms. Shoppers want to save money, but not at a cost to the planet. Many favour brands that are environmentally friendly or give something back to the community; a growing trend that is reflected in the number of companies that have opted to become a B Corp. Eponymous pottery brand Emma Bridgewater, cosmetics giant The Body Shop and meal-prep favourite Gousto all now proudly display the B Corp stamp.

Being responsible and socially conscious can give retailers a point of difference and create more reasons for consumers to shop with them. A transparent, sustainable supply chain is an essential component. Modern software and smart data will help ensure that route planning for transportation is efficient. It can cut mileage and better manage vehicle capacity to limit emissions, while also streamlining the consumer returns process to minimise wastage.

Managing uncertainty and boosting resilience

Retailers must be adept at managing uncertainty. As part of this, we expect to see companies looking to track consumer spending patterns more closely than they may have done previously. Stock inventory management is a key part of the puzzle and retailers will need to draw on software and data to ensure all the pieces fit together.

Vector, our bespoke supply chain software, gives retailers an integrated overview of how their supply chain is performing. It combines information from each of a retailer’s sales channels, warehouses, and order fulfilment sites, as well as tracking freight status. This builds a control tower view, with real-time data from each channel enabling quick, profitable decision making. It provides visibility that quickly pinpoints any problems, allowing for improvements to be made before they escalate into expensive, disruptive issues.

Overhauling “big box” warehousing    

We’re likely to see more retailers moving away from “big box” warehousing this year in favour of more flexible set-ups such as outsourcing to shared, third party space. It will shave a considerable expense from the balance sheet and help to boost profitability. Connective supply chain technology will achieve a smooth transition and minimise stock disruption.

There’s no doubt that supply chain innovation will continue to be a major focus this year, and beyond, as retailers look to increase sales, boost market share, and improve profit margins.

An agile, transparent supply chain underpinned by rich data and real-time insights will offer retailers a competitive advantage in tackling new and emerging risks, while ensuring they’re well-placed to take full advantage of exciting new opportunities.

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