How to Navigate the Bitter Realities of This Holiday Season (and the Supply Chain)

For most large retailers, their recent bump to sales volume is not working out as expected. Instead of a banner period of profitability, retailers are finding the costs to manage supply chains expensive. Logistics costs have skyrocketed. Ocean freight rates from Asia to the United States are significantly higher than last year, as are truckload rates in the U.S. As a result, most retailers are reporting underwhelming profitability despite record sales.

Moreover, the accelerating shift to e-commerce has left retailers struggling to predict how consumers will want to shop — and therefore where to optimally deploy inventory this year. The continuing shortages of essential raw materials and components, from rubber to microchips to glass, is forcing companies to order twice the volume they’re thinking they’ll need just to ensure they have sufficient products on hand. But this only adds to the big squeeze already on retailers’ cash.

As we enter the second half of 2021, many retailers accept that some level of inflation will need to be passed along to consumers in the form of higher prices. But some retailers, such as Albertsons, are warning CPG partners now that they won’t be ready to accept any major increases.

When you add up all that together, this holiday season is shaping up to be the most challenging in a generation. And there isn’t much time left to right the ship before the back-to-school and holiday seasons begin. Here, then, are the top four must-dos for supply chain leaders if their employers are to have any hope of enjoying a profitable season:

1. Build Resiliency in the Right Parts of Your Supply Chain

Retailers must build capabilities to respond to external shocks like cyberattacks, inventory shortages and bottlenecks, as well as new priorities from consumers, who increasingly want retailers to demonstrate sustainable and inclusive behavior. To build resiliency, retailers need much closer collaboration and visibility with suppliers. Retailers don't need to reinvent their global supply chains; they just need to manage critical suppliers, lanes and assets through the lens of resiliency.

2. New Capabilities to Sense and Forecast Demand in Real Time

Instead of relying on historical sales data, mine social media to determine a trend or an event that's impacting demand for a specific product and how a celebrity post is driving social engagement. Integrate your own loyalty data with geotargeting promotions to drive flash sales and cut into overstocking.

3. Re-Evaluate Warehouse and Fulfillment Center Strategy

Lean, efficiency-driven supply chains are making way for balanced but cost-effective systems. A key pillar of this movement is to locate inventory closer to consumers, requiring retailers to deploy smaller, higher-turn warehousing assets instead of "megasites" in low-cost locations away from end consumers.

4. Implement Partner Collaboration Cloud-Platform to Foresee Disruptions

By collaborating with contract manufacturers on any and all manufacturing capacity issues, you’ll know ahead of time when planned shutdowns, surge requirements, overtime issues, component shortages, and inventory levels before a plant causes a negative impact on your supply chain.

To win this holiday shopping season, retailers need to be more responsive to consumer patterns, absorb shocks, respond faster than rivals, and improve profitability through their supply chains.

John Piatek, is vice president of consulting at GEP, a leading provider of procurement and supply chain solutions to Fortune 500 companies.