Retail is one of the industries at the forefront of the economic downturn plaguing the UK and much of the rest of the world. It has been among those sectors worst affected by rising insolvency figures and has experienced the very public failures of some large and well established companies recently.
The sector is not just wrestling with the recent macroeconomic pressures that are fueling insolvencies across the board but is also facing longer term challenges. Challenges for retail that predate COVID, even if they were exacerbated by it. Chief among them is the problem of serious supply chain issues.
Whilst these were ultimately started by factors external to the retail industry they highlighted that the vast majority of companies, regardless of size, had neglected to develop, modernize or effectively manage their supply chains. Leaving them in a position of increased vulnerability to interruptions in supply.
Even after years of persistent supply issues, investing modernizing supply chain management techniques has yet to be performed by most in the industry but is becoming a priority for an increasing number. But given the other problem facing the global supply chain would a company changing its approach to its supply chain make a difference?
What issues are facing the global supply chain
Over the last few decades, business has become increasingly more international and interconnected. More efficient and affordable global transport meant that companies were able to become highly specific in what they manufacture whilst also having a market large enough to allow for such specificity. It also largely shifted production to countries where costs are low.
In and of themselves, these are not bad things but it has led to supply chains generally being incredibly complex webs that span the globe and rely on parts and completed goods changing hands and moving across multiple borders before becoming the finished product and reaching the final vendor. The lower costs and greater number of options afforded by this have benefited businesses and consumers greatly for many years, but it was not appreciated how fragile this system was, nor how vulnerable it could be to significant geopolitical and economic upheaval.
The arrival and aftermath of COVID along with recent geopolitical and macroeconomic events has brought this to light and caused significant issues. Some of which are:
- Worldwide increasing insolvency figures – Many different companies, usually involving many different countries, are involved in the production of goods. From the manufacture of individual components, assembly, packaging, and even sale and resale; if any of these companies suffer business failure then the whole process can grind to a halt. With more companies and more economies involved, the chance of this happening increases as each additional link is an additional point of vulnerability.
- Shipping delays – The global shipping network is yet to have fully recovered and remains unpredictable. With parts and goods frequently being shipped between links in a chain there is an increased chance that delays in shipping will interrupt the supply process.
- Spikes in demand – The demand for resources has been unpredictable since COVID and if a resource suddenly experiences one then it can become incredibly difficult for companies to source and inevitably leads to sharp price rises.
- Shortages – Brought about for a number of reasons, shortages of resources are a common occurrence in the post-COVID world.
- Increased transport costs – Fuel has risen sharply in price, whilst these prices are generally dropping they are still far above their pre-COVID levels. As a system that is heavily reliant on fuel-consuming haulage and shipping, this has been keenly felt.
- Adoption of low stock model – The many years of reliable and efficient supply almost guaranteeing the prompt delivery of goods has led to the adoption of a low stock model by most businesses. In this companies reduce their warehousing capacity to save on the cost of maintaining and running large warehouses; instead relying on low stocks that are replenished almost as soon as stock is sold. This led to a lack of reserves and capacity to stockpile. This lack of ability to stockpile means that companies are bound to the low stock model despite the fact it is no longer reliable.
Problems experienced by retail
Unsurprisingly, these issues have caused significant problems to the retail sector, even as it wrestles with the macroeconomic problems plaguing our economy. Retail is now amongst the worst affected by rising insolvency figures and say a 52% year on year increase in insolvencies to the end of October 2023.
It is worth noting that supply was already an issue for UK retailers prior to the wider problems experienced by the global supply chain. This is due to the effects of Brexit, which brought about costly and complicated cross-border trading with Europe. In fact, one of the many issues leading to the collapse of the high street giant Wilco was the inability to reliably source consumer favourite items due to Brexit.
The other significant supply problems currently experienced by retail are:
- Supplier failure – When a supplier fails retail companies are left scrambling trying to find a replacement. Assuming one can be found, which in all likelihood it will be, it is unlikely they will have the required goods in stock and must order them. Most items are experiencing extended lead times and there is no guarantee the items will be available for sale before revenue is interrupted.
- Lack of warehousing – As already discussed, most retailers no longer have significant warehousing and are reliant on a low stock model which is increasingly unreliable.
- Inability to capitalise on demand – Should an item experience a spike in demand, retailers struggle to source enough to capitalise on said demand.
- Difficulty in planning, forecasting, and strategizing – The unpredictable nature of contemporary supply means that retailers currently struggle to plan, forecast, and strategize.
- Reduced revenue – Ultimately, if a company does not have an item it can’t sell it. Difficulty or inability to stock many items has meant that retailers have lost out on significant levels of revenue.
Effective retail supply chain management techniques
As previously mentioned, retailers have neglected to invest in and develop effective supply chain management infrastructure, though they are not alone in this. Whilst this means that the supply chain issues currently being experienced have been significantly exacerbated, the good news is that there are many things retail companies can do to take control of their supply chains and bring about considerable improvements.
- Embrace digital transformation – Decentralized supply chain management that does not leverage technology or data effectively is no longer fit for purpose, yet remains the norm. To survive, companies must embrace technology and adopt the more advanced systems it offers.
- Monitor the financial health of suppliers – With insolvency rates projected to continue to rise for the foreseeable future, it is vital that retail companies avoid being caught out by a failed supplier. Business data platforms like Red Flag Alert allow you to monitor your suppliers’ financial health and gain early warning if they are showing signs of insolvency. This allows vital time to find a reliable and financially stable replacement. With Red Flag Alert you are also able to check and review the business health of a supplier before you enter into business with them.
- Employ supply chain management software – Supply chain management software allows the entirety of a company’s supply chain to be centrally managed. This software gives visibility over the entirety of a company's supply chain, which allows for more effective and informed planning and decision-making and uses complex machine learning to calculate more efficient and sustainable ways of operating.
- Diversify suppliers – Companies are increasingly diversifying their portfolio of suppliers. Rather than obtain a resource from a single supplier, companies are now using multiple. This spreads out the risk of a supplier failing, should this happen then there will still be a flow of supplies into the business and you are in a better position to obtain replacements at a fair price due to your pre-existing relationship with the other suppliers.
- Invest in warehousing – Having the ability to stockpile key resources is increasingly being seen as business critical. Boardrooms around the world are increasingly deciding that the increased overheads of maintaining and staffing warehouses is worth the ability to guarantee the availability of resources should there be a supply issue.
- Crisis planning – The only constant in today’s world is inconsistency. Even the best-managed supply chains are likely to experience interruption. The companies that practice the best supply chain management frequently review their protocols for failures. By having a well-thought-out crisis plan that can be carried out swiftly, companies are giving themselves the best chance of avoiding adverse effects.
Red Flag Alert and retail supply chain management
It is a critical time for many retail companies and they must seize every advantage they can to weather the continuing storm of supply and economic turmoil.
Red Flag Alert is the perfect tool to help retail companies manage their supplier risk, as well as finding well run financially stable suppliers. We are the industry leaders in identifying the early signs of business failure and growth and have over 20 years of experience in providing our customers with accurate and actionable data.
Our platform includes:
- Cutting-edge customizable monitoring tool that allows you to create individual monitoring lists, select which alerts to receive within each and share them between your organization.
- Real-time data feeds and alerts
- Understand your supplier's financial position with detailed business reports on all UK businesses
- Easy to understand business health ratings
- Find your perfect suppliers with our B2B Data Tool; featuring over 100 filters to choose from, including growth score
To find out how Red Flag Alert can help you protect your business and supply chain. Get a free trial today.