As we bid farewell to the festive whirlwind of the holiday season and embrace the dawn of a new year, retailers find themselves at a pivotal juncture. The last two years, retailers and suppliers alike were in a precarious position with an excess of orders, leading to a surplus of inventory that generated markdowns, and subsequently curtailed ordering due to overstocks. This serves as a cautionary tale, particularly considering the shifting economic landscape. Now, more than ever, retailers are acutely aware of the intricate dance between supply and demand. While the holiday rush is beyond us, leaders continue to confront the challenges of managing inventory, navigating disruption, ensuring consumer loyalty, engendering supply chain visibility, and adapting to evolving market dynamics.
The echoes of the past holiday season reverberate with cautionary tales, urging businesses to glean essential lessons and fortify their strategies for the year ahead. In this post-holiday reflection, we shift our focus from the recent seasonal challenges to review the proactive measures and insights that can shape a successful supply chain landscape for retailers and suppliers in 2024 and beyond.
Lesson 1: Learn from last year's challenges
Reflecting on the trials of the previous holiday season, retailers grappled with the aftermath of overflowing backrooms and warehouses. Last year, the consequences of consumer purchasing behaviors not aligning with expectations led to a surplus of inventory, resulting in markdowns and a subsequent decline in orders; by the second quarter of 2022, retail inventories were soaring by 31% compared to the same period the previous year. Going into the 2023 season, industry leaders had pegged the issue of excess inventory as potentially "the most troubling sign that the tide may be turning against the retail sector."
A surprising uptick in consumer spending offered a glimmer of hope. Despite a negative outlook on consumer spending, driven by rising prices and higher interest rates, consumers surprised retailers by breaking the previous one-day holiday sales record, increasing sales both in-store and online retail sales on Black Friday. Yet the rush of sales during the discount-heavy holiday was a subtle foreshadowing of consumers’ shifting behavior. While shoppers remain resilient, their spending remains slower overall, and they continue to be less receptive to big purchases. This experience emphasizes the critical importance of maintaining a cautious, resilient approach to supply chain management, regardless of any sudden spikes in sales.
As we approach the new year, the repercussions of 2023 are evident. With a restrained growth projection for American shoppers' spending, it is crucial for retailers to take a strategic approach to inventory management.
Lesson 2: Strengthen supply chain strategies and solutions to fortify inventory flows
Going into 2024, strengthening business processes is imperative, especially when it comes to inventory control. The strategy involves creating a seamless "phygital" linkage between physical inventory flows and digital data streams. This transformative approach offers retailers a perpetual inventory system, allowing them to continuously track each unit in real time. The system ensures that every item is monitored from sale to return, including movement between locations. Implementing this strategy provides updated and accurate information on inventory levels—an essential task for retailers gearing up for the challenges of next year’s holiday season.
The overarching goal of inventory control is clear—to enhance efficiency and profitability by meeting customer needs. Incorrect stock counts can lead to stockouts, unfulfilled orders, and ultimately, disappointed customers. Achieving inventory regulation and management is a prime opportunity for technology to take the lead—and there are a couple of tried-and-true solutions leaders can keep in mind:
- Radio frequency identification (RFID) tags: Whether operating passively or actively, RFID tags utilize radio frequency to search for and identify inventory. By enabling individual unit-level serialization, RFID provides organizations with the visibility they need to know what products they have (and where those products are) at any given time. RFID also supports critical supply chain processes such as withdrawals, product safety holds, and return logistics. RFID technology plays a pivotal role in achieving a more precise understanding of physical inventory throughout the supply chain and in brick-and-mortar stores, boasting accuracy levels nearing 99%. This technology minimizes inventory errors and notifies organizations when restocking is necessary, not only driving supply chain efficiencies but also enhancing customer experiences by assuring them that the products they order are readily available. Industry giants like Amazon and many others strategically leverage RFID tags to maximize profitability in their supply chain management.
- Barcodes: Another technological marvel in inventory control, barcodes and barcode readers offer a cost-effective solution for inventory management. As the universally recognized product information standard, barcodes and the unique product identifiers embedded within them significantly aid inventory management. By furnishing details about inventory levels and their respective locations, standardized barcodes and barcode readers act as an industry-accepted method for tracking products across the entire supply chain. The simple act of scanning a barcode enables retailers to identify the item, retrieves real-time pricing, and alerts the store to restock; all of which work to create a more efficient and accurate shopping experience for both the business and the customer.
The onset of 2D barcodes—a literal “new dimension” of product identification that industry will be transitioning to by the end of 2027—offers even more potential. These high-capacity barcodes, like a QR code, allow access to more comprehensive data, empowering business partners to enhance transparency, optimize inventory management, streamline returns, support sustainability initiatives, and equip information-hungry consumers with the data they need to make informed purchases.
The crux of successful inventory control lies in real-time tracking and data analytics. The ability to monitor and predict inventory levels aids in ensuring stores are adequately stocked and can be a critical tool for supply chain management, especially when dealing with inventory that is dispersed between distribution centers, warehouses, store shelves, and backrooms. Knowing the quantity available at each location eliminates waste costs, ensures order deadlines are met, and ultimately results in heightened profitability and customer satisfaction. As we navigate the complexities of modern supply chains, embracing these technological advancements becomes integral to fortifying retail operations.
Lesson 3: Understand current disruptions and how to navigate them
Even after the busy holiday season, global supply chains still face an array of pressures, both persistent and emerging. Traditional risks—including war, adverse weather conditions, and economic recessions—continue to cast a shadow. Labor shortages and strikes pose new concerns, particularly in technology-heavy fields. To fortify supply lines, stakeholders must adopt proactive measures, including:
- Improving supply chain visibility: Enhancing visibility throughout the supply chain is paramount for effective inventory management, product traceability, chain of custody, and sustainability. Transparent data-sharing among all stakeholders fosters improved coordination and responsiveness. This transparency also empowers brands and retailers to communicate openly about potential delays or challenges. The shift in consumer expectations towards faster delivery times underscores the need for brands to enhance supply chain visibility. Proactively adjusting shipping policies based on supply chain constraints allows brands to optimize routes while managing inventory more effectively. This strategic adjustment can reduce operational stress during peak seasons and enable brands to allocate resources more efficiently. By leveraging improved visibility to offer value-added services, such as real-time tracking information or more cost-effective shipping windows, brands can enhance the overall customer experience, fostering trust and loyalty.
- Diversifying suppliers and sourcing strategies: Supply chain diversification is a key strategy for resilience. The practice is defined as the intentional process of working with multiple suppliers to mitigate risk. It typically involves measures such as relocating specific operations closer to home markets, identifying new suppliers to mitigate risks, and establishing contingency plans for sourcing. The goal is to create a more flexible and adaptable supply chain that can withstand challenges, minimize vulnerabilities, and ensure continuity of operations in the face of disruptions or uncertainties.
- Adopting adaptive logistics strategies: The seasonal surge in consumer demand means retailers face one of their greatest challenges during the first few months of the new year: the rush of post-holiday returns. Logistics operations must be dynamic and capable of adjusting to changing circumstances in order to manage the challenge posed by returns. Adapting logistics operations with this in mind ensures that brands can take this change in volume in stride by efficiently handling increased product flows, adjusting workforce allocation, and managing storage space effectively. Managing chain of custody is critical when dealing with returns, and visibility is needed to ensure returned products are accounted for as they move backwards through the logistics network. This approach also safeguards sustainability, ensuring that environmental considerations are not lost in the logistics shuffle. Sustainable practices have gained importance in consumers' minds, with 57% naming sustainable packaging and shipping practices as the most important green factor when deciding to buy from a brand, according to recent studies. By incorporating these preferences into the returns process, without compromising on efficiency, brands can capitalize on the opportunity to enhance customer loyalty while still ensuring that products are handled, inspected, and reintegrated into inventory in a timely and cost-effective manner.
What to take away for a prosperous future
As they navigate the seas of change, retailers that have learned from past challenges will be better equipped to create a resilient and successful future.
The past few holiday seasons serve as a reminder of the delicate balance between supply and demand in the face of economic shifts. As we progress through 2024, inventory control will remain pivotal. As retailers move forward, they should recognize that the retail landscape is evolving and that the focus is shifting to crafting a seamless omnichannel experience. It is essential that they be able to meet consumer demand with the right product, at the right price, and at the right time—whether through in-store interactions or online engagements. Additionally, embracing technology solutions has become the linchpin for success. Technologies such as RFID and barcodes play essential roles in helping companies manage and regulate their inventory levels.
In an environment rife with disruptions throughout the global supply chain, supply chain leaders have been called to action. Proactive measures such as improving visibility, diversifying suppliers, and adopting adaptive logistics strategies are imperative not only to prevent empty shelves but also to fortify supply lines and deliver a frictionless consumer experience across channels.
These lessons learned transcend challenges; they form the blueprint for a resilient and prosperous future. Recognizing the nuances of robust inventory management, harnessing technology for managing and regulating inventory flows, and confronting disruptions head-on are not just takeaways; they are the keys to navigating the seas of change with confidence and triumph. The call to action resounds—implement these insights, embrace adaptability, and embark on the future with resilience and success.
