The combination of pandemic lockdowns and rising freight prices has forced some companies to focus on vulnerabilities in the supply chain.
Many retail companies – e-commerce, omnichannel, direct-to-consumer, B2B – have seen some type of supply chain disruption in the past 18 months.
Each company and industry is likely to have unique experiences in terms of products and suppliers. These experiences instill a new awareness of the supply chain to guide purchase, inventory and advertising decisions.
“You can’t accept that [your supply chain] will function as it has in years past, ”said Rick Wilson, CEO of Miva, the SaaS e-commerce platform.
Wilson’s company saw the impact of the pandemic on thousands of trading companies.
At first there was a sense of the unknown.
“It’s hard to mentally go back to a place in time, but if you look at March 10th to 30th the entire world economy would suffer.
However, the impact on e-commerce soon became apparent. Sales soared. Wilson’s customers recorded sales in the middle of summer like on Black Friday.
Concerns about the economy gave way to worries about the supply chain.
In 2020, global standstills designed to “flatten” the curve slowed or stopped production around the world.
Unsurprisingly, inventories began to decline.
For example, in February 2020, U.S. retailers held around 43 days of inventory, according to a White House article quoting data from the U.S. Census Bureau. By June 2021, retail inventory levels had dropped to around 33 days, the lowest level in 30 years.
Businesses should therefore think about the manufacturing facilities they depend on, including the risks of further lockdowns and other pandemic-related disruptions.
“It’s easy project management,” said Wilson. “You have to reverse engineer [the supply chain]. You take a Gantt chart and work back from delivery to the customer. They check every step. “
When manufacturing is vulnerable, a dealer may buy earlier, hold more inventory, or mine relatively less. For example, a retailer without adequate Christmas inventory might avoid offering Black Friday discounts and instead sell available inventory at full margin.
Slowed production isn’t the only potential supply chain problem. According to the Wall Street Journal, global container shipping costs have quadrupled in the past year. Some container prices have increased more than 50% since May 2021.
The factors driving the surge are complex, but likely include a backlog, the Suez Canal blockade in March 2021, and congested ports in California and China. Regardless of this, the effect is painful for retail companies.
“I got some really bad news just last week. A 40-pound container passing through Surabaya, Indonesia used to cost $ 5,000. It costs up to $ 19,500, ”said Kyle Tortora, owner of Lotus Sculpture, an Oceanside, California-based retailer of handmade Hindu and Buddhist statues.
“Indonesia is usually the most expensive place I ship from, but that’s way too expensive,” said Tortora, “so I’ve changed my plan.”
Tortora generally buys garden statues from artists in Indonesia and buys a container load about every month. He took a different approach that year by placing a massive five-container order but not immediately shipping it. Instead, its suppliers are holding back the goods in the hope that container prices will fall in the coming months.
Companies with similar vulnerabilities may want to evaluate supplier and transportation options. If there aren’t any viable alternatives, it is probably wise to start raising prices now, well before the holiday season.