Supply Chain Crisis Is Retailers’ New Normal

For a moment, at the end of last year, it seemed like the sun was beginning to set on the pandemic. Container volume at key ports like Los Angeles had reached a new high. The retail industry had booked record annual revenue. It felt like the worst of the global supply chain breakdown was surely behind us.

Three months later, it’s clear we’re sliding backward — fast.

The retail industry faces a long slog as last year’s crisis morphs into this year’s new normal. Chartering ships and paying huge transportation premiums to get goods into stores last Fall was a way to stop the bleeding, but the patient isn’t getting any better.

Container volumes at China’s second largest port, Shenzhen, had already been declining when the city was recently locked down to blunt a new Covid wave.

The war in Ukraine threatens up to 30% of the world’s wheat supplies and 60% of the world’s supply of sunflower oil. It has severed supply lines for commodities like nickel and aluminum.

Half of the world’s neon gas, a crucial element in the manufacture of semiconductor chips, is refined in Ukraine and Russia. That includes up to 90 percent of US neon imports, according to some experts.

In this bleak landscape, consumer-facing companies face daunting challenges. For example, how to sell a new car when it’s missing some of the chips needed to operate all the features that buyers ordered?

Ford recently announced that it will sell vehicles without chips that control non-safety critical features (such as seat warmers), promising to install them within a year. In one case I know of, the dealer offered a rebate for the missing features so the buyer could take delivery.

This second wave of the supply chain crisis has caught many retailers by surprise. In a recent call with analysts, Gary Friedman, CEO of luxury home furnishings brand RH (formerly Restoration Hardware), admitted,

“Many of us thought we’d have been caught up by now. We’ll be lucky to be caught up by the end of the year.” But the goal for retailers isn’t quite so easy as getting caught up. Caught up to what?

It’s a misguided aim to get back to “normal.”

The days of free-flowing global trade are behind us. Geopolitical events are out of the control of executives. What they do control is what they know or can learn about their customers.

In a recent podcast, Inna Kuznetsova, CEO of 1010Data, a retail analytics vendor, suggested that while retailers are being forced to maintain higher safety stock, what matters most is having, “a granular understanding” about consumer preferences that is up-to-the-minute, “not just based on the last 52 weeks of consumer behavior.”

To weather supply chain disruptions, she says, retailers should, for example, be analyzing the results of promotions and resetting them, “as you go, not months after the promotion has ended and you just see it in the review mirror and cannot change anything.”

Companies that keep a finger on the pulse of the costumer through research, surveys, and data mining will be better able to quickly pivot pricing and other promotional tactics, maybe even get closer to matching supply with demand.

“I think it is time to start adjusting to new realities as opposed to sit and wait for the end of the disruption,” says Kuznetsova. “We have to assume [it] will last for quite a while and then the question begins how can you use that disruption to modify your processes.”