Reviewing supply chains to find efficiencies ranks as a top priority for retailers contending with the impacts of the cost-of-living crisis.
Stuart Greenfield, Sales Director at Advanced Supply Chain Group, looks at the trends that the search for supply chain savings will lead to.
ASCG research of UK retailers found that 28% are planning to reduce selling prices this year, whilst 22% have already started doing this. The aim is to drive sales amongst price-sensitive consumers being squeezed by rising living costs. To make price cuts possible and protect margins, four in ten retailers have made supply chain efficiencies their number one solution. We expect this to fuel three key trends.
1) Faster customer returns and refunds
Many of our initial conversations with new retail customers start with ways to improve consumer returns. This part of supply chains has suffered from a legacy issue, where returns have often been overlooked in favour of the core areas of operation that generate revenue.
Historic approaches mean there’s huge scope for retainers to improve how they’re handling customer returns, and the ability to make significant financial savings. Salvage rates can be enhanced to reduce losses associated with product disposal or having to discount selling prices due to the condition of returned goods. Items can also be more effectively and quickly returned to their original point of sale to avoid out of stock scenarios and maximise sales opportunities to achieve optimum selling prices.
Beyond these benefits, we also expect to see returns come under the spotlight as retailers aim to speed-up customer refunds. According to ASCG’s research, half (51%) of consumers will spend between £50 to £200 less each month this year on non-food shopping, as they face higher energy bills and the impacts of inflation. Every hard-fought sale will become even more valuable for retailers, and a quick returns and refund process could help to lock-in sales by ensuring that an item being sent back doesn’t mark the end of a shopper’s transaction. If customers receive their money back quicker, they’re more likely to respend with the same retailer.
2) Saying goodbye to big sheds
Retailers who are reviewing supply chains to make savings are putting warehouses at the top of their list. Our research found that half of those retailers who are aiming to reduce costs to protect margins are starting with a review of their warehouses. Whether rented or owned, big sheds appear as a big expense on balance sheets. Addressing this can prove a quick and effective method for reducing an overhead that’s a big contributing factor to margin dilution.
We expect to see a shift towards outsourced warehousing, which will allow retailers to optimise spend on warehousing. Many will find they stop paying for under-utilised space and find new solutions for enhancing the effectiveness and efficiencies of fulfilment.
Software and data overhauls
The quest for supply chain savings risks being made more complex for retailers because of strategies to streamline and diversify stock inventory. ASCG’s research highlights that around a third (31%) of retailers plan to diversify their product offer over the next few years to increase reach and sales amongst shoppers.
By default, introducing new products or stripping out existing SKUs requires an interrogation of supply capacity and performance. It also requires consideration of any changes that might be needed to handle different goods. How will product diversification affect the average size, shape, weight, and volume of products moving through the supply chain? Is the supply chain management solution agile enough to cope with changes?
Questions and factors such as these will act as a catalyst for retailers to revisit supply chain processes and software and will encourage them to sharpen their focus on stock inventory management data. This will lead to an overhaul of outdated supply chain technology and software, which isn’t fit-for-purpose or simply scalable and adaptable enough to meet the demands of modern, flexible supply chains. Elements of change and transformation tend to quickly reveal the inadequacies of supply chain solutions, which are otherwise masked by age-old processes and have become accepted as the norm.
Our research shows most retailers are increasingly take a medium-term view of how the cost-of-living crisis is affecting sales, with many thinking about making supply chain changes over the next two-to-three years. There’s more inclination to replace ineffective legacy supply chain software in favour of more bespoke solutions that will deliver data that yields sustained performance and productivity benefits.