Right now, 100% of retailers are experiencing supply chain delays in one form or another (according to a recent Software Advice survey).
And while in the past nothing struck fear into a retailer’s heart quite like the words: “Your delivery is delayed,” there’s a worse message hitting businesses these days: “Your shipment is stuck, and we have no idea when it’ll arrive.”
Giant freight carriers are stalled outside major ports. Container ships are circling at sea because ports are clogged. Distribution centers are understaffed due to labor shortages.
Ahead of the 2021 holiday season, retailers are experiencing a horror of another kind—a supply chain disruption.
What is a supply chain disruption?
A supply chain is a network of people, organizations, and activities that move products from supplier to final customer. A supply chain disruption is any sudden change or crisis—be it local or global—that negatively impacts that process.
What can retailers do when supply chains are delayed or broken—and they have no idea when their items will arrive?
Let’s look at how you can prepare for and mitigate the impact of supply chain disruption, as well as how you can communicate with consumers when disruption has already occurred.
For this report, Software Advice surveyed:
Key takeaways from Software Advice’s Retailer Supply Chain Disruption Survey
- Retailers have no visibility into their order fulfillment and delivery timeframes
- Ordering inventory for the holiday season in July is still too little, too late
- Relying on a single supplier is the biggest vulnerability in a retailer’s supply chain
- Working with overburdened suppliers is the most common and biggest challenge
- Retailers are having to pass costs on to consumers
- Retailers are ordering larger upfront quantities ahead of the holiday season
One of the biggest challenges facing retailers is calculating their anticipated order fulfillment (the process of receiving, packing, shipping, and delivering an order), and then promising an accurate delivery time to customers. Currently, 44% of retailers don’t know how long their order fulfillment and delivery (37%) will take.
68% of respondents ordered inventory early for the upcoming holiday season, but July wasn’t early enough. Over 25% say they should have started ordering inventory for the 2021 holiday season between January and February of this year.
Nearly a quarter of retailers (22%) say relying on a single supplier has been their biggest supply chain weakness ahead of the upcoming holiday season.
54% of retailers say working with overburdened suppliers is a challenge in their buyer-supplier relationship, while a full 47% cite it as their biggest challenge.
Asked about what supply chain-related consequences their business is experiencing, retailers are experiencing higher direct costs(39%), such as buying more expensive materials, as well as indirect costs (32%), such as longer workflow times. As many as one in three (34%) retailers are increasing their retail prices, while nearly one in five (19%) are absorbing increased costs into their business.
To address existing supply chain bottlenecks, 42% of retailers are taking steps to ensure they can deliver for their customers through the holidays. That includes ordering larger upfront quantities of items to avoid having to restock products while ensuring products arrive on time.
5 ways to mitigate supply chain disruption
– With contributions from supply chain analyst Olivia Montgomery
When it comes to managing your supply chain, having a strategy to tackle disruptions is the best defense. Here are a few ways you can strategically take on potential challenges.
It’s worth noting that while our survey reports on the current state of supply chain disruptions, these strategies stand the test of time and should be applied to prepare for supply chain disruptions both now and in the future.
1. Create a supply chain emergency plan and central emergency control center
Let’s return to this statistic: 100% of retailers are experiencing moderate (72%) to significant (28%) supply chain disruption ahead of the upcoming holiday season.
In other words? No one has been spared.
Disruptions happen, and you need to be ready with a robust backup plan to tackle unforeseen circumstances.
- Start by answering the question: What would/do we need during a supply chain emergency? Additional products, storage space?
- Identify the backup reserves—inventory or equipment—that you’ll need to ensure your business can continue in the event of a crisis.
- Establish a contact list and protocols so all employees are ready to help handle a crisis when the time comes.
2. Stay ahead of demand by building up inventory through local suppliers
When we asked retailers what they’re doing about supply chain bottlenecks, 42% said they’ve pivoted to ordering larger upfront quantities well in advance. This has led to retailers and manufacturers over ordering and, essentially, panic ordering.
Even if it’s too late to do so for the 2021 holiday season, here’s what you can do in the future:
- Start preparing a stockpile of essential supplies and products that can tide you over through disruption periods.
- Get the real-time status of products from plan to delivery by investing in inventory management software so you have the visibility you need to make smart decisions about when and how much to order. This helps avoid overstocking and losing money spent to purchase that inventory.
To maintain operations, this online retailer pivoted to local products
“We already had stockpiles of raw materials and even finished goods which helped us run the business smoothly even during supply chain delays. Moreover, we reevaluated our business and started to focus more on locally manufactured products. This helped us easily ship our products to customers. Having good relationships with suppliers in different areas also ensured that we were able to ship products to customers in certain regions.”
–Aviad Faruz
CEO of Faruzo
3. Conduct a supply chain vulnerability audit
In the current crisis, retailers admitted to weaknesses within their supply chain, such as having no visibility into order fulfillment (44%) and working with already overburdened suppliers (54%).
As supply chains continue to grow in complexity, here’s what you can do:
- Ideally sometime early in Q1, partner with your lead salesperson to identify what went wrong and what went well with this season’s inventory strategy execution.
- Then, use that information to start a conversation with your top suppliers about how to mitigate any impact from potential disruption going forward.
4. Build relationships with multiple suppliers
Relying on a sole supplier is the biggest vulnerability in their supply chain, according to nearly a quarter of surveyed retailers.
Diversifying your pool of suppliers is not only necessary but crucial to strengthen the resilience of your supply chain. Working with just one supplier leaves your supply chain vulnerable when a disruption like this happens, leaving you with no plan B.
Building long-term relationships with more than one supplier means you’re better positioned to tackle challenges when they arise.
Here are a few pointers on how to identify the right backup supplier:
- Ensure the supplier/manufacturer can produce the same quality of product. Request a proof of concept, and have it tested by the Quality Control (QC) at your company to ensure it meets your standards.
- Determine its ability to scale and increase production if needed. Inquire about the supplier’s processes and disaster management plan in the event of a crisis.
- Request a list of the supplier’s existing clients to ensure they’re not working with a competitor.
- Negotiate a rate based on origin country/location relating to tariffs, trade agreements, etc. Often, a new supplier will offer a better deal to gain a new customer.
How an outdoor furniture company worked with its suppliers
“We work with multiple U.S.-based manufacturers, so we are diversified to ensure our customers are able to get the type of product they need. We are constantly in touch with our manufacturing partners, on the phone weekly and emailing daily. We discuss labor strategies, how to increase output, and help support their business. Most importantly, we approach it as a true partnership as that is the key to successful collaboration, even prior to COVID-19.”
–Chris Campbell
partner of The Charming Bench Company
5. Invest in warehouse space to help move away from a “just in time” mindset
A “just in time” philosophy has dominated the supply chain industry for decades, but this approach places a huge amount of stress on each step of the chain. The pandemic and other changes such as government tariffs have broken the chain at each already stressed step.
Here are a few ways to move away from a “just in time” mentality:
- If one of the actions you plan to take to mitigate supply chain stress is to order earlier and more, don’t forget to ensure you have appropriate warehousing to support this approach. That means not just having the adequate size, but ensuring the climate is agreeable to your products and that the location is near your business.
- This may be a challenge for small retailers, and one affordable solution is contacting other local businesses and co-locating your inventories in shared rented space. There are warehouses across the country that specialize in this colocation practice that you can partner with, too.
How supply chain disruptions are affecting consumers
Now that we’ve covered strategies for how your business can mitigate supply chain crises with suppliers, it’s time to delve into what consumers are experiencing during this disruption period.
More importantly, we’ll share five tips on how to communicate effectively with your customers about delays while providing a positive shopping experience.
Key takeaways from Software Advice’s Consumers Holiday Shopping Survey
- Consumers are experiencing out-of-stock products
- Delivery delays, high prices, and out-of-stock items are top of mind
- Consumers want transparency on the status of their items
- Retailers are doing a good job communicating disruptions to consumers
- Gift cards and shopping local are a backup plan
44% of consumers aren’t able to find what they need when shopping. When asked how often products have been in stock at the time they were shopping, 39% of consumers say sometimes, while 8% say rarely/never.
Supply chain disruptions have trickled down into the minds of consumers; 63% cited shipping and delivery delays as something they were concerned about, followed by high retail prices and out-of-stock products (both tied at 48%). These concerns have translated into action, with 95% saying they started shopping for the holiday season as early as October.
When shopping for the holidays, 76% say displaying a “low stock” message online before an item goes out of stock is “important” or “very important,” while 51% say it’s “very important” to be notified when the product is back in stock. 42% report uncertain shipping and delivery times during their shopping experience leading up to the holidays.
Consumers are satisfied with retailers’ response to the supply chain disruption. 86% of consumers feel retailers have been moderately to extremely effective in managing their expectations during this period.
In the event that products are out of stock or arriving late, consumers say they plan to purchase gift cards/certificates (50%) and shop locally where they can find items in-person (50%).
5 strategies for communicating with shoppers during a disruption
1. Create a shipping policyIf you don’t already have one, this is a must to address the current delays.
Marcus Valdez, senior content manager at Thegamedial, recommends ensuring the policy addresses “potential concerns, answers queries, and expresses gratitude to your customers for their patience.”
That also includes average handling and processing times, as well as rules on returns and exchanges, he advises.
2. Communicate before, during, after the transaction
Proactive communication can go a long way in resolving problems before they arise, especially during the holiday season. It’s an opportunity to build trust, while demonstrating that you’re on top of the situation.
Valdez suggests setting up an email system that sends messages automatically as an efficient way of updating your customers on the latest situation.
Set expectations early about potential disruptions, provide tracking updates, and share specific actions you will take in the event of disruptions. And don’t forget to check in after.
“After the product has been delivered, make sure to follow up on the customer’s experience. Never ask for a review before the product has been delivered,” says Valdez.
How a construction company communicated expectations
“Most people understand that there are supply chain disruptions, and that’s been very helpful for business relations. We still do consultations before beginning any renovation project, and we continue to be honest and realistic about timelines and costs associated with certain projects. We also keep our website updated so our customers are aware of how we’re operating and what to expect. Luckily, we have been navigating weak supply chains for quite some time now, which allows us to be more accurate in our estimations.”
–Craig Ricks Jr.
president of Acadian Windows and Siding
3. Provide alternatives
If the item is going to be delayed or is out of stock, acknowledge the inconvenience and offer some other options for your customers such as an alternate product or free shipping.
Sixty percent of our survey respondents say recommending similar products would be most effective in encouraging a purchase, while 82% say free shipping is important or very important for their purchase decision.
4. Personalize your communication
Empathy is crucial in times of disruption. Automated and generic responses can leave your customers feeling unseen.
Where possible, personalize your messages and communicate one-on-one. Even addressing customers by name can go a long way toward building a positive customer experience.
Build resilience into your retail supply chain
It’s easy to take smooth inventory arrival for granted. The current supply chain havoc is a reminder to retailers that disruptions will happen, and you need to be prepared.
It starts with having a plan before the next supply chain emergency happens, and communicating with customers about the one happening now.
For more help on preparing for disruption, check out these resources:
Software Advice conducted:
The Retailers Supply Chain Disruption survey from October 14–26, 2021 of 307 U.S. retailers with 500 or fewer employees to learn more about how they are experiencing and managing disruptions to supply chains. Respondents were screened to confirm that they were part of a team or solely involved in procurement and/or inventory management at their company and have experienced a moderate or more severe level of supply chain disruption.
The Consumer Supply Chain & Holiday Shopping survey from October 18–19, 2021 of 1,455 U.S. consumers who were shopping during that period, or were planning to shop during and after the 2021 holidays.
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